GMAC announced a $750 million bond tender offer on Wednesday designed to keep it from breaching its debt covenants amid turmoil at its troubled mortgage unit, Residential Capital.
The company said its purchase of the notes in the offer at a discount will increase ResCap's fourth-quarter earnings and keep its net worth above the $5.4 billion level. If it's below that by the end of the year, ResCap could violate covenants on portions of its unsecured credit lines, potentially making it a candidate for bankruptcy.
At the end of the third quarter, ResCap reported its net worth at $6.2 billion, down from $8.4 billion a year earlier.
GMAC also said its management team will recommend "as necessary" to its board of directors another capital contribution to ResCap in order to ensure it's in compliance with the covenants.
Meanwhile, a spokeswoman for GMAC's former corporate parent,
, said the automaker is under no contractual obligation to provide the finance company with any more capital infusions beyond the $1 billion equity contribution it has already made.
That could leave Cerberus Capital Management, the private-equity firm that bought a 51% stake in GMAC for around $14 billion from GM last year, on the hook for more cash. GMAC said it's also exploring the acquisition of a foreign mortgage finance company with which it could merge ResCap and dilute its losses.
"Other interested parties are actively pursuing the same acquisition and there can be no assurance that GMAC will be successful in consummating a transaction for all or part of such institution," said GMAC's press release.
GMAC said it has also engaged advisers to explore the sale of certain parts of ResCap's operations.
ResCap has been punished as foreclosures on subprime mortgages and other risky home loans result in staggering losses for the business -- once the crown jewel of a finance business that was the mainstay of GM's profitability.
Heavy losses at ResCap have weighed on this year's earnings results for GM, which still owns a 49% stake in its parent, GMAC. The severity of the problems emerging, combined with heated speculation of more problems to come, have sent the automaker's shares tumbling recently to a low for the year.
However, lately shares of GM were up $1.24, or 4.7%, to $27.53.