For Residential Capital, will buying time be enough?

The 300 bankers gathered at New York's Waldorf-Astoria Hotel last month faced a stark choice: Accept Sam Ramsey's plea to restructure $60 billion of GMAC's debt or risk pushing the lending arm of General Motors Corp., the largest U.S. automaker, to the brink of insolvency.

"There was not room for slippage," said Ramsey, 49, a former Bank of America Corp. exec who joined Detroit-based GMAC in September and became chief risk officer two months later. He pulled it off as banks led by New York-based J.P. Morgan Chase & Co. and Citigroup Inc. provided GMAC and its Residential Capital mortgage unit with the biggest restructuring package since the credit-market rout began a year ago.

Whether that's enough to ride out the worst housing slump since the Great Depression remains in doubt. Moody's Investors Service cut GMAC's credit rating one level to six rankings below investment-grade last week as ResCap burns through cash after losing $5.3 billion in the past six quarters.

GMAC, started 89 years ago by GM, has 27,000 employees, twice the number that Bear Stearns Companies, the fifth-biggest U.S. securities firm, had when it was rescued in March by J.P. Morgan. GMAC's $250 billion in assets makes it bigger than Countrywide Financial Corp., the biggest U.S. mortgage company by loans, which is being bought by Bank of America.

GMAC's latest rescue effort began early May 2, when ResCap released a statement saying it would offer as little as 80 cents on the dollar to exchange or buy back $14 billion of bonds to delay maturities and reduce debt.

Shortly before 9 a.m. New York time, bankers filtered into the Waldorf's Starlight Roof on the 18th floor, where Guy Lombardo and his Royal Canadians once serenaded New Year's revelers. J.P. Morgan Vice Chairman James Lee kicked off the event. Then came GM Chief Operating Officer Fritz Henderson. Next was Stephen Feinberg, founder of Cerberus Capital Management, who'd been instrumental in leading the $7.4 billion purchase of 51 percent of GMAC in 2006.

Separated from the automaker, GMAC's credit rating was supposed to rise from junk, which would have lowered borrowing costs. Instead, the ResCap unit was hit by a cash crunch as subprime home loans started to default. The Minneapolis-based housing unit lost more than $4.3 billion last year, contributing to a $2.3 billion loss for GMAC.

"It was the first time some of the lenders had the opportunity to see that management did have a plan for continued success," said Chad Leat, chairman of Citigroup's Alternative Asset Group in New York, who attended the meeting and led Citigroup's underwriting of the loans. "It was the first opportunity to hear and see the visible support, not only with words, but also with money from GM and Cerberus."

Following a lunch break, Ramsey, Leat and other executives broke into groups to take more specific questions. The central theme: Keep ResCap afloat long enough to take advantage of an eventual recovery in the housing market after more than 100 mortgage companies closed down, halted operations or sold themselves since the start of 2007. ResCap ranked eighth among U.S. home-lenders last year.

J.P. Morgan's Lee wrapped up the day at about 3 p.m. Over the next month, with GMAC's future hanging in the balance, Ramsey, de Molina, Lee, Leat and Feinberg hit the phones to make certain the banks understood the terms.

June 4, GMAC replaced $6 billion of unsecured revolving credit lines, half of which were scheduled to mature this month, with an $11.4 billion secured revolving credit line that matures in three years. It also renewed a one-year $10 billion commercial paper agreement, and ResCap got a one-year extension on $11.6 billion of bank loans.

As a lender, Citigroup liked the deal because it was able to swap unsecured commitments for secured ones, Leat said.

Besides financing the bond exchange, GMAC and Cerberus agreed to pony up another $2.88 billion for ResCap after the lender fell $2 billion short of meeting debt obligations this month because it couldn't sell assets to raise cash.

ResCap must still come up with enough cash to repay $3.5 billion of bonds and the $3.5 billion loan from GMAC in 2010.