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26 Nov 2007
Moody's places GMAC's Ba2 rating on review for possible downgrade
New York, November 26, 2007 -- Moody's Investors Service placed GMAC LLC's Ba2 senior unsecured
rating on review for possible downgrade. The action was in response
to GMAC's affirmation of support for Residential Capital,
LLC (ResCap), as disclosed in ResCap's November 21,
2007 debt tender announcement. ResCap's ratings and outlook
(Ba3 senior unsecured, negative outlook) were not affected by the
tender announcement or this GMAC rating action.
Moody's said that GMAC's most recent expressions of support
for ResCap have raised additional concerns as to the extent to which the
firm might entertain a leveraging of its credit profile to support ResCap
through its operating difficulties. Moody's position is that
any capital support GMAC extends to ResCap, other than that for
which GMAC serves only as a conduit for GMAC's owners, would
result in an equalization of GMAC's ratings with ResCap's.
In Moody's view, GMAC's high stand-alone leverage
position has no capacity to provide un-backed support at the current
In Moody's last rating action on GMAC and ResCap (see press releases
dated October 30, 2007), GMAC's ratings were downgraded
one notch to Ba2 while ResCap's ratings were downgraded two notches
to Ba3. GMAC's ratings were kept in proximity to ResCap's,
reflecting Moody's view that GMAC could be required to provide support
to ResCap that weakens GMAC's stand-alone credit profile.
Moody's believes that the probability of such support may have shifted
higher, in light of the explicit indications of support recently
provided by management.
During its review of GMAC's ratings, Moody's will seek
greater definition regarding the tolerances GMAC's owners exhibit
regarding the uses of GMAC's capital and credit worth to support
ResCap in ways that could heighten risks to GMAC's creditors.
Moody's will also explore the owners' ability and willingness
to take actions that neutralize the impact of GMAC's extensions
of support to ResCap that would otherwise diminish GMAC's stand-alone
credit profile. Moody's anticipates concluding its review
by the end of December 2007.
According to Moody's, investments or pursuit of endeavors
that primarily benefit ResCap could evidence a use of GMAC capital that
constitutes ResCap support, if not backed by injections or other
explicit support from GMAC's owners. Moody's is also
concerned that current market conditions have delayed GMAC's pursuit
of other intended capital management initiatives designed to strengthen
its capital position.
Moody's view is that GMAC's auto finance and insurance businesses
have continuing and important strategic value to GM. GM's
consent is required on many significant matters relating to GMAC's
strategic direction, investment, and capitalization.
GM's interest could act as a countervailing influence on investor
pressures to further involve GMAC in supporting ResCap through its difficulties.
ResCap's ratings (senior unsecured at Ba3) and negative outlook
are not affected by Moody's review of GMAC's ratings or the announced
$750 million tender offer. ResCap's current rating assumes
its parent is willing and able to provide capital support if needed.
Moody's added that it believes that the maturities selected for
tender and overall size of the program are appropriate considering ResCap's
current liquidity position.
Detroit-based GMAC LLC provides retail and wholesale auto financing,
auto extended warranty and insurance products, and residential mortgage
finance through wholly-owned subsidiary Residential Capital,
LLC. GMAC reported a consolidated nine-month net loss of
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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