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Rating Action:

Moody's upgrades GMAC to Ca and reviews ratings for further possible upgrade

10 Jun 2009

New York, June 10, 2009 -- Moody's Investors Service upgraded the senior unsecured rating of GMAC LLC to Ca from C. In addition, Moody's placed GMAC's senior unsecured and preferred stock ratings (currently C) on review for further possible upgrade. The ratings of Residential Capital LLC (ResCap, senior at C), GMAC's residential mortgage finance subsidiary, were not affected by this action.

Moody's said the upgrade of GMAC's rating reflects the firm's lower bankruptcy risk resulting from the U.S. government's support of the firm, including significant capital injections that have improved its liquidity and capital positions, partial U.S. government ownership, and GMAC's role in the U.S. government's efforts to reinvigorate the U.S. domestic auto industry. Of continuing concern, GMAC must yet raise substantial additional equity to comply with the requirements of the recently concluded stress tests under the U.S. government's Supervisory Capital Assessment Program. Though it is possible that GMAC could seek to fill a portion of the additional capital need through a distressed debt exchange, Moody's believes the motivation of bondholders to accept the terms of a distressed exchange are uncertain, given GMAC's lower risk of bankruptcy. Were such an exchange commenced, Moody's also believes that the result for bondholders would be consistent with the newly assigned Ca rating.

"Capital inflows, partial government ownership, and GMAC's importance to reviving GM and Chrysler point to a lower probability of near-term default," said Moody's senior analyst Mark Wasden. "However, the challenges GMAC faces in executing its business strategy and the resultant uncertainties for bondholders remain a constraint on GMAC's credit."

Government support of GMAC has been multifaceted. In May, GMAC issued $7.5 billion of mandatorily convertible preferred membership interests (MCP) to the U.S. Treasury, $4 billion of which supports GMAC's agreement with Chrysler LLC to provide financing to Chrysler dealers and customers. GMAC was also approved to participate in the FDIC's Temporary Liquidity Guarantee Program (TLGP), under which it can issue up to $7.4 billion in FDIC guaranteed debt by October 2009. GMAC issued $4.5 billion of TLGP debt on June 3, which Moody's rated Aaa. The U.S. government's ownership of GMAC is about 35%, which would increase upon conversion of the U.S. Treasury's MCP's.

GMAC was also granted additional flexibility to issue GM-related auto finance receivables in GMAC Bank (a/k/a Ally Bank) under an expanded 23A exemption to the Federal Reserve Act. Assets originated in the bank are funded by deposits, which are a lower cost source of funding that GMAC has continued to access throughout the current cycle.

Notwithstanding these positive developments, Moody's remains cautious regarding the operating and financial challenges GMAC faces. In particular, it is uncertain how GMAC will raise by November 2009 the $5.6 billion of "new" and $2.4 billion of "other" capital qualifying as Tier 1 common equity that is required by regulators. Moody's believes GMAC's access to private sources of capital to meet these requirements is limited and that the firm will most likely request an additional investment from the U.S. Treasury.

GMAC is also contending with asset quality deterioration in its auto finance and residential mortgage operations that could lead to further operating losses during the current downcycle. Moody's rating anticipates that ResCap will continue to require capital support from GMAC as it services a large portfolio of troubled mortgages to liquidation.

Additional long-term uncertainties relate to GMAC's eventual ownership structure and liquidity profile, as well as GMAC's relationships with "new" GM and Chrysler and the strength of their future operating prospects. Moody's believes that GMAC must eventually demonstrate capital and funding strategies that don't rely upon continued U.S. government involvement in the firm.

During its review of GMAC's ratings, Moody's will seek clarity regarding GMAC's capital raising plans. Should the firm successfully fill the capital requirement while preserving the status and protections of senior creditors, its long-term ratings could be upgraded to the Caa category.

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

GMAC LLC:

Senior Unsecured: to Ca from C

GMAC Australia LLC:

Backed Senior Unsecured: to Ca from C

GMAC Bank GMBH:

Backed Senior Unsecured: to Ca from C

GMAC International Finance B.V.:

Backed Senior Unsecured: to Ca from C

GMAC, Australia (Finance) Limited:

Backed Senior Unsecured: to Ca from C

GMAC (NZ) Limited:

Backed Senior Unsecured: to Ca from C

General Motors Acceptance Corp. of Canada Ltd.:

Backed Senior Unsecured: to Ca from C

Moody's has also assigned a rating of Ca to senior unsecured debt issued to holders that tendered old bonds as a part of GMAC's December 2008 bond exchange. The exchange bonds are guaranteed by certain GMAC subsidiaries. In Moody's view, the additional creditor protections associated with the guarantees is insufficient at this time to warrant a notching differential from GMAC's senior unsecured debt that does not benefit from these guarantees.

In its last rating action on November 20, 2008, Moody's downgraded GMAC's rating to C from Caa1, following GMAC's launch of a debt exchange offering that Moody's viewed as a distressed exchange.

The principal methodology used in rating GMAC is Analyzing the Credit Risks of Finance Companies, which can be found at www.moodys.com in the Credit Policy & Methodologies directory, in the Ratings Methodologies subdirectory. Other methodologies and factors that may have been considered in the process of rating these issuers can also be found in the Credit Policy & Methodologies directory.

GMAC LLC is a global financial services company operating in the automotive finance, dealer and personal line insurance, and residential real estate finance sectors.

New York
Mark L. Wasden
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Curt Beaudouin
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's upgrades GMAC to Ca and reviews ratings for further possible upgrade
No Related Data.
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