GM financing unit faced grim choice in survival bid

Grand Blanc, Michigan: The financing arm of General Motors Corporation wasn't immediately revealing yesterday whether it had met a midnight deadline to clear a final hurdle in its quest to become a bank holding company, which would allow it to access billions in federal bank bailout money.

GMAC Financial Services LLC already received the Federal Reserve's stamp of approval earlier last week, but needed to complete a complicated debt-for-equity exchange by 11.59pm.

In an e-mail at 12.45am Thursday, GMAC spokes-woman Gina Proia did not say whether the company met the deadline. She didn't respond to repeated requests for further comment.

Analysts have speculated that without financial help, GMAC would have had to file for bankruptcy protection or shut down, dealing a serious blow to GM's own chances for survival.

When the Fed on Wed-nesday made GMAC eligible to access part of the government's $700 billion (Dh2.5 trillion) bank rescue fund, it was contingent on the ailing auto and home loan provider completing the debt exchange.

The Federal Reserve apparently needed to see that the bondholders were willing to inject more capital into GMAC, a critical requirement to get bank holding status.

GMAC bondholders needed reassurance that the Fed would approve GMAC's application to qualify for federal aid.

Sources close to the neg-otiations with bondholders said last week that talks with GMAC were not going well, with creditors wanting more for their debt investments.

But Scott Talbott, a financial services lobbyist in Washington, said that any stubbornness among bondholders might have softened in recent weeks given the stakes.

"Anytime you ask investors to change their expectations and get less than anticipated, it causes strife," Talbott said Friday. "But as the weeks wore on it became clear that without change the choice was getting very little in bank-ruptcy or accepting the changes in order to ensure the strength of GMAC to get the bulk of their investment back." Shares of GM surged on Friday, the first day of trading since the Fed's announcement late Wednesday. Shares rose 41 cents, or nearly 13 per cent, to $3.66.

The Fed's action Wed-nesday came as GMAC was still struggling to get bondholders to convert 75 per cent of their debt into equity of the company. The Fed cited "emergency conditions" in justifying its decision.

GMAC's goal is to reach $30 billion in capital, the majority of which would come from the exchange of debt.