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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
- 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
Confirmation of ResCap's ratings reflects the following considerations
(see prior press release dated November 15, 2006 for additional
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
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
Financial Institutions Group
Moody's Investors Service
Mark L. Wasden
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service
No Related Data.
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