DBRS Maintains GMAC & Related Subsidiaries “Under Review with Developing Implications”

Dominion Bond Rating Service (“DBRS”) has today maintained General Motors Acceptance Corporation (“GMAC”) and its subsidiaries “Under Review with Developing Implications”. This follows the announcement that General Motors Corporation (“GM”) has signed a definitive agreement to sell a 51% interest in GMAC to a Consortium led by Cerberus Capital Management, LP (“Cerberus”) for total proceeds of US$14 billion. The transaction is expected to close in the fourth quarter of 2006, subject to obtaining all necessary regulatory approvals. DBRS’s ratings for GMAC will remain “Under Review with Developing Implications” until that time. Upon closing, given no material changes to the details of the actual transaction, and no material changes to the general market/economic environment and status of GM, DBRS expects that its rating of GMAC will remain BBB (low). Moreover, upon completion of the transaction, DBRS believes that this transaction will effectively de-link the ratings of GMAC from that of GM. Further, given no changes in the standalone performance at Residential Capital Corporation (“ResCap”), DBRS expects to maintain the one notch differential between the rating of ResCap and that of GMAC.

GMAC’s ratings have been closely tied to GM’s ratings reflecting the close linkage of the two entities. The sale of 51% of GMAC by GM to the Consortium is sufficient to decouple the ratings of GMAC from GM, in DBRS’s opinion. However, as a quasi-captive finance entity, GMAC will continue to be dependent on the financing of GM products and as such, will continue to be reliant on the volume, pricing, and ongoing asset value of GM automobiles. Although this transaction contains substantial actions to reduce GMAC’s balance sheet exposure to GM, which includes eliminating the vast majority of direct GM debt, GM-related products will continue to generate approximately 50% to 60% of GMAC’s net profits.

DBRS notes that there is an issue with GM, which affects GMAC. Due to the restatement of its previous financial statements, there is now uncertainty regarding GM’s ability to access its US$5.6 billion unsecured standby line of credit facility (currently un-drawn). GM itself has cash and short-term VEBA of US$20.4 billion but also has a negative working capital position of roughly US$20 billion (as per DBRS’s calculations), and accounts payable of US$26 billion. With a possible prolonged strike at Delphi Corporation (“Delphi”), most of GM’s U.S. plants would close due to a parts shortage. This would result in a challenge to liquidity in a worst-case situation. In addition, this could affect the closing of the GMAC sale, and cause DBRS to reduce GMAC’s rating into the B range. In the event that this takes place, the rating for ResCap would also be reduced to one notch above that of GMAC’s.