As part of an ambitious plan to delay debt maturities and stay in business for another couple of years, Residential Capital (ResCap), the troubled real estate unit of GMAC, has offered to redeem $14 billion in bonds for as little as 77 cents on the dollar. The offer, announced May 2, expires June 3.

"Basically it's Look, you either do this and we stave off defaulting on our debt for another year, or we can default now. It's up to you guys,'" said one investor, whose firm has CDO positions in ResCap. "If you want to drag your feet and kick and scream, it's OK, but at the end of the day ... this is what you need to do.'"

To help fund the plan, the company needs to secure a $3.5 billion first-lien senior secured credit facility from GMAC, and it is negotiating the terms with its parent. A spokeswoman for GMAC declined to comment on whether the facility would be syndicated to investors.

"We are highly leveraged relative to our cash flow, and our liquidity position has been declining," ResCap said in a filing with the Securities and Exchange Commission. "There is a significant risk that we will not be able to meet our debt service obligations, be unable to meet certain financial covenants in our credit facilities, and be in a negative liquidity position in June 2008."

ResCap has roughly $4.4 billion of long-term debt maturing in 2008 - $1.2 billion in floating-rate notes due in June, $1.8 billion under a term loan due in July and another $1.1 billion in notes due in November, it said. It also had, as of December 2007, roughly $15.6 billion of secured, short-term debt outstanding with various maturing dates in 2008.

The company has begun a cash tender offer on the $1.2 billion in floating-rate notes due June 9, as well as an exchange offer for another $12.8 billion in notes consisting of dollar-, euro- and sterling-denominated floating- and fixed-rate debt maturing from 2008 to 2015. The fixed-rate coupons range from 7.125% on 550 million due 2012 to 9.875% on GBP363 million due 2014.

All bonds that mature in 2008 and 2009 would be exchanged for new 8.5% senior secured guaranteed notes due May 15, 2010. All bonds that mature from 2010 to 2015 would be exchanged for new 9.625% junior secured guaranteed notes due May 15, 2015. All new notes will be U.S. dollar denominated.

Depending on which debt investors currently hold, some will receive only $800 for every $1,000 in outstanding principal. Holders of certain investments will receive as much as the full principal amount, if the bonds are redeemed by May 16.

If the debt is redeemed after May 16 but before the June 3 expiration date, investors would receive payments of between $770 and $970 for every $1,000.

The senior secured guaranteed notes will be secured on a second-lien basis by the collateral for the proposed $3.5 billion credit facility, while the junior secured guaranteed notes will be secured by a third lien on the same collateral.

(c) 2008 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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