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November 28, 2007 |
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GMAC AUSTRALIA: Moody's Places Ba2 Rating for Possible Downgrade 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 credit grade. In Moody's last rating action on GMAC and ResCap, 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 US$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 US$1.6 billion. |
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