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Rating Action:

Moody's rates ResCap exchange debt Caa2 and Caa3, on review down

16 Jun 2008
Moody's rates ResCap exchange debt Caa2 and Caa3, on review down

New York, June 16, 2008 -- Moody's Investors Service assigned ratings of Caa2 and Caa3 to Residential Capital LLC (ResCap)'s senior secured and junior secured bonds, respectively. These bonds were issued as part of ResCap's bond exchange which was completed on June 4, 2008. The ratings of ResCap's unsecured senior debt and unsecured subordinate debt were affirmed at Ca and C, respectively. Ratings are under review for downgrade. Separately the senior unsecured rating of GMAC LLC (GMAC) was downgraded to B3 from B2 with a negative outlook.

ResCap's ratings are based on its consistent quarterly losses (the company recorded its sixth consecutive quarterly loss in the first quarter of 2008), weak liquidity position and what Moody's considers to be an impaired franchise.

In regards to liquidity, although the bond exchange reduced ResCap's liabilities by approximately $1.7 billion and extended significant maturities to 2010, ResCap has not proven it has a business model that can produce the required operating cash flow to ultimately service these obligations. ResCap has significant maturities in 2010: senior secured bonds of $1.7 billion, senior unsecured bonds of $1.8 billion, and the new $3.5 billion credit facility provided by GMAC. "Even after this exchange, we believe ResCap's debt levels remain inconsistent with its long term earnings potential." said Moody's Vice President and Senior Credit Officer Craig Emrick.

ResCap also lacks sufficient committed contingent liquidity. The $3.5 billion credit facility provided by GMAC replaced the company's committed, undrawn revolving bank credit facilities of $1.75 billion (two lines each with $875 million capacity) and has likely been utilized for the following: to pay $900 million of bonds that matured on June 9, 2008, to fund the $1.2 billion modified Dutch auction that was offered as part of the bond exchange, and transfer to GMAC/prepay a $1.75 billion bank term loan due in July 2008.

The secured bonds have second and third lien claims on ResCap's unencumbered assets behind the GMAC credit facility. Although we consider this collateral pool to be of poor quality it does support a notching differential between the various classifications of debt.

The review will focus on the company's ability to obtain the cash necessary to remain solvent and maintain compliance with its debt covenants. ResCap has stated it must generate approximately $2.0 billion in cash over and above its normal mortgage finance activities by June 30, 2008 to meet near term liquidity needs and maintain compliance with the GMAC facility covenant to maintain $750 million in cash and cash equivalents (excluding cash at GMAC Bank). ResCap has raised approximately $1.2 billion and has plans to raise an additional $800 million primarily through various asset sales and secured borrowing facilities with its parents (both GMAC and Cerberus). The ability of ResCap to complete these transactions, and their sufficiency to meet ResCap's cash needs, remains uncertain.

Assignments:

..Issuer: Residential Capital, LLC

....Senior Secured Regular Bond/Debenture, Assigned Caa2

....Junior Secured Regular Bond/Debenture, Assigned Caa3

ResCap is a subsidiary of GMAC LLC and is headquartered in Minneapolis, Minnesota. Rescap reported equity of $5.7 billion at March 31, 2008.

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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