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Rating Action:

Moody's downgrades ResCap to Ca, rating under review down

02 May 2008
Moody's downgrades ResCap to Ca, rating under review down

New York, May 02, 2008 -- Moody's Investors Service downgraded to Ca, from Caa1, its ratings on the senior debt of Residential Capital, LLC (ResCap) subject to the bond exchange announced by ResCap on May 2, 2008. The rating of ResCap's approximately $1.2 billion of bonds maturing on June 9, 2008 was affirmed at Caa1. These bonds are not part of the exchange and the company has announced they intend to commence a cash tender for these bonds at par. All ratings remain under review for downgrade. The senior unsecured rating of GMAC LLC (GMAC) was left unchanged at B2, under review for downgrade.

The downgrade follows the company's announcement of an exchange offer for certain of its unsecured bonds. Moody's considers this exchange to be a distressed exchange because the bonds being offered in exchange for ResCap's existing debt is being offered at a discount to par value and will have longer maturities. Distressed exchanges are included in Moody's definition of defaults.

The exchange debt being offered will have second or third lien claims on ResCap's unencumbered assets behind a proposed $3.5 billion credit facility that ResCap is negotiating with GMAC. These claims on ResCap's unencumbered assets will substantially subordinate any existing debt that does not participate in the exchange. "This exchange was undertaken to assist ResCap in avoiding a payment default on its existing unsecured bond obligations," said Moody's Vice President and Senior Credit Officer Craig Emrick.

If all bonds subject to the exchange participate at the early delivery price, ResCap's outstanding bonds will be reduced by approximately $2.2 billion to approximately $11 billion (excluding the company's June 9, 2008 maturities and $1.75 billion bank line maturing in July 2008). This does not include any possible reduction in outstanding debt through the company's proposed $1.2 billion modified Dutch auction that is being offered for those bonds which participate in the exchange. Of this amount approximately $3 billion will mature in May 2010 and $2.6 billion in May 2013, 2014 and 2015 under the terms of the exchange.

Despite the benefits this exchange could have on ResCap's ability to service its debt, the ratings remain under review for downgrade. This is because ResCap has not proven it has a business model that can produce the required operating cash flow to service and ultimately repay these reduced obligations. "Even after this exchange, we believe ResCap's debt levels will remain inconsistent with its long term earnings." said Mr. Emrick.

Additionally, the ultimate resolution of the company's $1.75 billion bank loan which matures in July 2008 and two $875 million (total of $1.75 billion) committed, undrawn, unsecured revolvers which mature in June 2008 and June 2010 remains unclear. Moody's considers this line availability to be an important source of contingent liquidity.

The rating of ResCap's $1.2 billion of June 9, 2008 bonds was affirmed at Caa1 as these bonds are not part of the exchange and the company has announced they intend to commence a cash tender for these bonds at par. Additionally, even if the cash tender for these bonds is not untaken, their maturity in advance of the bank facilities maturing mentioned above increases the likelihood they will be repaid.

Downgrades:

..Issuer: Residential Capital, LLC

....Multiple Seniority Shelf, Downgraded to (P)Ca from (P)Caa1

....Subordinate Regular Bond/Debenture, Downgraded to C from Caa2

....Senior Unsecured Regular Bond/Debenture, Downgraded to Ca from Caa1

..Issuer: Residential Funding of Canada Finance ULC

....Senior Unsecured Regular Bond/Debenture, Downgraded to Ca from Caa1

On Review for Possible Downgrade:

..Issuer: Residential Capital, LLC

....Senior Unsecured Regular Bond/Debenture, Placed on Review for Possible Downgrade, currently Ca

..Issuer: Residential Funding of Canada Finance ULC

....Senior Unsecured Regular Bond/Debenture, Placed on Review for Possible Downgrade, currently Ca

ResCap is a subsidiary of GMAC LLC and is headquartered in Minneapolis, Minnesota. Rescap reported equity of $6.0 billion at December 31, 2007.

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

New York
Craig A. Emrick
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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