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Rating Action:

Moody's confirms GMAC and ResCap ratings

30 Nov 2006
Moody's confirms GMAC and ResCap ratings

New York, November 30, 2006 -- Moody's Investors Service confirmed GMAC LLC's Ba1 senior unsecured ratings, following GM's announcement that it has closed the sale of a 51% stake in GMAC to FIM Holdings, LLC, an investor consortium led by Cerberus FIM Investors, LLC. Moody's also assigned a new rating of Ba3 to GMAC's $1.9 billion preferred equity securities, which were issued to GMAC's owners in connection with the sale transaction. The outlook for GMAC's ratings is negative. Concurrently, Moody's also confirmed Residential Capital LLC's ("ResCap") Baa3 unsecured and Prime-3 short-term ratings, with a stable outlook. GM's ratings (B3 corporate family, Caa1 senior unsecured) are unchanged as they already take into consideration the impact of the sale on the company's credit profile.

Moody's confirmation of GMAC's ratings incorporates the following key factors (see prior press release dated November 15, 2006 for additional commentary):

- GM's sale of a 51% stake in GMAC results in ratings de-linkage from GM on the basis of a change in control in favor of the Cerberus consortium.

- The transaction reduces GMAC's direct and indirect exposure to GM and eliminates its potential liability for GM's pension obligations, which improves the firm's risk profile.

- GMAC's new owners are expected to have a positive influence on GMAC's operating strategy, which will emphasize profitability improvements through gains in operating and funding efficiency, capital strengthening through earnings retention and dividend reinvestment, and enhanced liquidity through improved access to the capital markets.

- GMAC will have a continuing business concentration with GM, which, given GM's operating challenges, poses ongoing risks to GMAC's operating metrics and access to confidence sensitive funding, constraining the rating and outlook.

- GM's call option on GMAC's automotive operations represents an upside ceiling on GMAC's unsecured rating (the higher of Baa2 or one-notch higher than GM's rating) based upon a re-linkage of ratings should GM exercise the option.

Moody's noted that GMAC's negative rating outlook could improve to stable in the near term should the firm succeed in strengthening its liquidity profile, in particular, by mitigating the GM bankruptcy risk embedded within its wholesale receivable funding facility, SWIFT. Developments in GM's condition and performance will also be very important considerations in reassessing GMAC's rating outlook.

Confirmation of ResCap's ratings reflects the following considerations (see prior press release dated November 15, 2006 for additional commentary):

• The sale of a 51% interest of GMAC to Cerberus will result in ratings de-linkage from GM and likely improve ResCap's access to alternative funding sources.

• ResCap has had significant success in gaining strong access to diverse funding sources in the global public capital markets, thus eliminating its reliance on intercompany borrowings from GMAC.

• ResCap has made solid progress in integrating its GMAC Residential and GMAC RFC mortgage businesses.

• However, ResCap has further progress to make to complete the integration of its business platforms and reduce business infrastructure costs.

• ResCap's limited independent operating track record, the highly competitive residential mortgage banking environment in which it operates and its moderate capitalization continue to be rating factors.

ResCap's stable outlook implies that following a change in ownership there will not be a material alteration to ResCap's leadership, business model or capital structure. The stable outlook also reflects a reduction in the linkage between ResCap and GMAC. Moody's expects that the sale will lead to an enhancement of ResCap's operational structure and flexibility, which should result in further earnings and funding diversity over time. Nonetheless, ResCap's rating continues to be linked to that of its parent. Thus, an action regarding GMAC's ratings could result in a similar action with ResCap's ratings, assuming no material changes in ResCap's corporate ownership. Notching between the two firms' ratings could increase to as much as two notches, once existing operational and funding structure uncertainties are resolved, demonstrating ResCap's independence from GMAC.

GMAC LLC is a Detroit-based provider of retail and wholesale auto financing, primarily in support of GM's auto operations. GMAC reported earnings of $2.4 billion in 2005.

ResCap is a holding company for the real estate financing businesses of GMAC, including GMAC-RFC Holding and GMAC Residential Holding Corp.

New York
Robert Young
Managing Director
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Mark L. Wasden
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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