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Rating Action:

Moody's downgrades GMAC unsecured debt to C

20 Nov 2008
Moody's downgrades GMAC unsecured debt to C

New York, November 20, 2008 -- Moody's Investors Service downgraded the senior unsecured debt of GMAC LLC to C from Caa1, following GMAC's launch of debt exchange offerings for debt in face amount totaling $38 billion ($29 billion GMAC; $9B Residential Capital LLC, or "ResCap"). The outlook for the GMAC's ratings is developing. In a related action, Moody's downgraded ResCap's senior unsecured rating to C from Ca and assigned a stable outlook (see separate press release).

The downgrade of GMAC's ratings is based on Moody's view that the exchange offering is a distressed exchange, as it results in a diminished financial obligation for GMAC. Distressed exchanges are included in Moody's definition of default.

Holders of GMAC bonds eligible for exchange may receive a combination of new senior notes guaranteed by certain GMAC subsidiaries, subordinated debt (senior notes maturing in 2031 only), preferred shares, and cash. Bondholders exchanging GMAC debt and participating in the cash option could receive notional value in the exchange that represents a potentially meaningful discount to the original par value of the exchanged debt. Additionally, while the maturity and interest rate of the new senior notes will closely match those of the old notes, the newly issued preferred shares will have both indefinite maturity and lower priority compared with the old notes.

Moody's also commented that investors with eligible debt that don't participate in the exchange and holders of approximately $38 billion of non-eligible debt will be structurally subordinated to the new senior notes, as the old notes will not benefit from the GMAC subsidiary guarantees.

GMAC's ratings also incorporate operating pressures relating to general capital market illiquidity, continuing underperformance at ResCap and the consequent possibility for further reliance upon GMAC for support, weakening asset quality trends in the auto finance portfolio, and operating challenges at GM. During the fourth quarter to date, GMAC has forgiven $239 million of ResCap indebtedness and has plans to provide up to $500 million of additional support to ResCap. Moody's believes extensions of support to ResCap have weakened GMAC's capital and liquidity profiles and has resulted in GMAC possessing concentrated risk exposures to the financially weakened company.

Moody's said that GMAC is also facing a possibility of breaching one or more of its leverage covenants if its capital position weakens further. The increased potential for default under these agreements, and the associated implications for GMAC's financial condition, were contributing factors in Moody's rating committee outcome.

In connection with its debt exchange offerings, GMAC announced that it has applied to the U.S. Federal Reserve for bank holding company status. The benefits of achieving bank holding company status could include access to additional sources of capital and liquidity, potentially including U.S. government programs such as the Troubled Asset Relief Program and the Temporary Liquidity Guarantee Program. These sources could forestall a further weakening of the firm's credit profile. In time, bank holding company status could also serve as a basis for GMAC achieving a more stable operating and funding profile. Moody's believes that for GMAC to meet requirements for bank holding company status it must raise significant additional capital. The exchange offerings, if successful, could be an important source of capital toward that objective.

The developing outlook assigned to GMAC's ratings is in recognition that a successful conversion to bank holding company status, incorporating strengthened capitalization and access to new liquidity, could improve the firm's financial and operating flexibility. Moody's will closely monitor developments in this regard, including their effect on GMAC's new and old debt issuance. Moody's notes, however, that GMAC's credit profile could weaken significantly if its application is not approved.

Noted below are the ratings affected by Moody's action:

GMAC LLC:

Senior Unsecured: to C from Caa1

Preferred Stock: to C from Ca

GMAC Australia LLC:

Backed Senior Unsecured: to C from Caa1

GMAC Bank GMBH:

Backed Senior Unsecured: to C from Caa1

GMAC International Finance B.V.:

Backed Senior Unsecured: to C from Caa1

GMAC, Australia (Finance) Limited:

Backed Senior Unsecured: to C from Caa1

General Motors Acceptance Corp. (N.Z.) Limited:

Backed Senior Unsecured: to C from Caa1

General Motors Acceptance Corp. of Canada Ltd.:

Backed Senior Unsecured: to C from Caa1

GMAC LLC is a global financial services company operating in the automotive finance, dealer and personal line insurance, and residential real estate finance sectors. Total reported assets at September 30, 2008, equaled $211 billion.

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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