DBRS Confirms GMAC, LLC at BBB (low) with a Stable Trend

DBRS has today confirmed the ratings of GMAC, LLC and its related entities, including its BBB (low) Long-Term Debt rating. The trends are Stable. This rating confirmation follows GMAC’s announcement that it expects to record a $305 million loss for the first quarter of 2007.

This loss was caused by the $910 million loss at its residential mortgage operation, Residential Capital, LLC (ResCap). ResCap continues to be pressured by the weakness in the U.S. residential mortgage market. ResCap’s earnings were affected by the industry-wide weakening of the performance of mortgages to subprime borrowers, depressed loan valuations, higher loss severities and reduced home price appreciation. The losses at ResCap more than overshadowed the solid operating performance at GMAC’s Auto Finance segments and the increased earnings at GMAC’s Insurance segment.

Despite the weakened profitability measures, DBRS believes that the business fundamentals remain acceptable at GMAC. Credit quality within its auto receivables portfolio remains acceptable, margins at its North American operations have improved, and retail penetration has increased, bolstering volumes despite reduced U.S. sales at General Motors Corporation (GM). GMAC’s other material business, the Insurance segment, is expected to contribute $143 million of net income for the first quarter, reflecting favorable investment income and reduced loss experience. The Insurance operations add to earnings and business diversity; however, despite its business expansion and growth initiatives, GMAC’s Auto Finance and Insurance segments remain highly dependent on GM for its volumes.

GMAC continues to maintain substantial liquidity, with $12.8 billion of cash and marketable securities at March 31, 2007. Capitalization remains acceptable and was bolstered by $1 billion of common equity injected by GM based on the final settlement provisions of the GMAC transaction.

The Stable trend reflects DBRS’s expectation that ResCap will continue to be a drag on GMAC’s earnings for the first half of 2007; however, DBRS expects that as the year progresses, the earnings drag will be greatly reduced as ResCap’s subprime exposure is reduced, the industry fundamentals stabilize and ResCap begins to benefit from its remediation initiatives and cost-reduction plans. Moreover, factored into the Stable trend is DBRS’s expectation that GMAC’s Auto Finance and Insurance segments will continue to enjoy solid performance. Finally, the Stable trend incorporates DBRS’s expectation that asset quality trends will remain within expectations and liquidity and capitalization will remain appropriate.

Note:
All figures are in U.S. dollars unless otherwise noted.