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DJ: GMAC Bonds Soar On Bond Holding Co Plan, Exchange Offer By Kate Haywood Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)--The bonds of General Motors Acceptance Corp., or GMAC, jumped sharply, while the cost of insuring the firm's debt against a default fell Thursday after the firm confirmed it has applied to become a bank as it seeks money from the Treasury Department's $700 billion injection effort. -The cash-strapped financier, 49%-owned by General Motors Corp. (GM), also announced offers to exchange $38 billion in notes from GMAC and its Residential Capital home-lending business for new securities with the same maturity dates and interest rates. The move would cost GMAC up to $2.5 billion in cash, it said. -"If it gains bank holding status, GMAC will be able to access the Treasury's $700 billion rescue package, which will clearly improve its prospects in terms of funding and capitalization," analysts at Daiwa Securities said. -As a result, GMAC's 7.25% bonds due 2011 charged 16.75 points higher to 52 cents, according to BondTicker. The company's 5.625% notes due 2009 gained 18 points in early trading to hit 80 cents, BondTicker shows. -In the credit default swap market, where investors make bets on the likelihood of a company defaulting on its debt, the cost of protection on GMAC's senior bonds dropped slightly but remained at extremely distressed levels. The company's five-year CDS was quoted at 57 points upfront Thursday morning. This implied that investors would have to pay $5.7 million upfront plus $500,000 a year to protect $10 million of GMAC's' bonds against default for five years, according to CMA Data Vision. This is a modestly lower compared with late Wednesday when investors had to pay around $5.87 million upfront. -"GMAC's application to become a bank holding company was already anticipated by the market," said Kingman Penniman, president of KDP Investment Advisors. "But until investors saw it in black and white [this morning], the market [for GMAC's bonds and credit default swaps] didn't move." -GMAC offered investors combinations of new GMAC notes, GMAC preferred stock and cash. This will cut the firm's debt levels as part of its plan to become a bank holding company. Holders of GMAC bonds maturing before 2031 will receive new guaranteed GMAC notes with the same interest rate and maturity, the company said. Investors in GMAC notes maturing in 2031 will receive new guaranteed GMAC notes, new GMAC 8% subordinated notes due 2018 and new 5% perpetual preferred stock with a liquidation preference of $1,000, or cash, which will be prorated after $2 billion. -The new guaranteed GMAC notes will be guaranteed by the firm's subsidiaries GMAC Latin America Holdings, GMAC International Holdings Cooperatief U.A., GMAC Continental, IB Finance Holding and GMAC US. These new notes will be senior to any subordinated notes at these subsidiaries and will rank equal with all existing and future senior debt of such note guarantor, GMAC said. -In addition, GMAC offered to exchange its mortgage unit Residential Capital LLC or ResCap's 8.5% second lien notes due 2010 for new GMAC 7.5% notes due 2013. Holders of other ResCap notes, including 9.625% junior secured third-lien notes due 2015, can receive new GMAC 7.5% notes due 2013 and new subordinated notes or cash, which will be prorated after $500 million, GMAC said. -This sent ResCap's bonds higher. The 8.5% bonds gained between six to seven points to around 31.5 cents, while 9.625% 15 cents from 11 cents Wednesday, according to Standard & Poor's Leveraged Commentary and Data. -ResCap completed a $14 billion refinancing in June, which resulted in a downgrade to D on a host of the company's bond issues. Holders of bonds due in 2008 and 2009 received the 8.5% second-lien 2010 notes, and holders ResCap's bonds which matured in 2010 through 2015 got the 9.625% junior secured third lien notes. The exchange announced Thursday offers expire on 11.59 p.m. EST on Dec. 28 -GMAC's confirmation of its application to become a bank holding company and its exchange offer comes just days after Commercial-finance company CIT Group Inc. (CIT) announced plans to swap $2.2 billion of debt in an attempt to raise the amount of capital needed to become a bank. -As banks, both GMAC and CIT could raise money at lower financing costs if they participate in the Federal Deposit Insurance Corp.'s guarantee program that provides government backing to debt from qualifying financial institutions. -By Kate Haywood, Dow Jones Newswires; 201-938-2348; kate.haywood@dowjones.com (Mike Barris contributed to this article) Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http://www.djnewsplus.com/al?rnd=ZeJWYD76SSUIrDh7xN%2BBbg%3D%3D.