DBRS Downgrades GMAC, LLC to CCC, Places Under Review-Negative

DBRS has today downgraded all of the long-term ratings of GMAC, LLC (GMAC or the Company) and its related entities, including GMAC’s Issuer and Long-Term Debt rating, to CCC from B and placed the ratings Under Review with Negative Implications. The R-5 short-term ratings remain Under Review with Negative Implications, where they were placed on October 30, 2008.

The downgrade follows GMAC’s announcement that it has commenced private-exchange offers and cash-tender offers to purchase and/or exchange certain of its and its subsidiaries’ outstanding notes held by eligible holders for cash, newly issued notes of GMAC and preferred stock of a wholly owned GMAC subsidiary. Specifically, the downgrade reflects DBRS’s view that the notes held by the existing bondholders will be subordinate to the newly issued debt resulting from the exchange offer. However, the level of subordination has yet to be determined as it will be set by the level of participation in the exchange offer; as such, the downgraded long-term ratings have been placed Under Review with Negative Implications, indicating that additional downgrades are possible.

Moreover, the downgrade reflects the ongoing weakness in GMAC’s core Global Automotive Finance segment and DBRS’s expectation that GMAC’s performance will continue to be affected by increased credit costs, impairments to its operating lease portfolio and valuation adjustments in the held for sale (HFS) assets and retained interest portfolios. Strained higher funding costs and reduced origination volumes will also drive weaker near-term performance. DBRS views the Company’s liquidity risk as elevated since it currently has very limited access to market funding, covenants remain tight and access to new forms of funding are limited.

DBRS views many aspects of this exchange offer as disadvantageous to the current bondholders for the following reasons: the bondholders that choose to accept the exchange offer will receive less than the original principal amount and those that do not participate will effectively be subordinate to the newly offered debt. Given that the proposed exchange does not fully reimburse bondholders, DBRS expects that, upon completion of the exchange, the debt that is exchanged will be placed in a default status in accordance with DBRS policy. DBRS recognizes the benefits of a successful bond exchange as debt will be reduced, capitalization will be enhanced and the Company will benefit from potential gains. However, the level of any benefits has yet to be determined. Although the successful execution of an exchange of a meaningful amount of bonds should provide near-term relief, DBRS remains concerned that the deteriorating trends in GMAC’s core automotive segment will reduce the Company’s ability to defend its franchise. Moreover, given the escalating pressure on consumers, declining U.S. automotive sales and the overall deteriorating operating environment, the prospect for a quick recovery in GMAC’s underlying performance is diminishing.

The rating action discussed above follows GMAC’s offer to purchase and/or exchange certain notes held by eligible holders for either new securities consisting of a combination of newly issued senior guaranteed notes of GMAC with the same interest rate and maturity date as the applicable series of old GMAC notes and newly issued 5.00% perpetual senior preferred stock (New Preferred), with liquidation preference of $1,000 per share of a wholly owned subsidiary of GMAC or cash. Alternatively, current bondholders may choose to do nothing and retain their current instrument. The new guaranteed notes will be guaranteed by certain subsidiaries of GMAC. Existing notes maturing in 2031 will be offered a combination of new guaranteed notes and newly issued 8.00% subordinated notes of GMAC due 2018 along with the New Preferred or cash. The GMAC offers are conditional upon, among other things, the completion of the Residential Capital, LLC (ResCap) offers (see related DBRS press release) and a sufficient amount of old ResCap notes having been tendered for purchase and/or exchange pursuant to the GMAC offers such that, in GMAC’s judgment, GMAC has obtained a sufficient amount of capital in connection with the GMAC offers, whether or not such amount of capital would be sufficient to satisfy the requirements of the Bank Holding Company Act or any other applicable regulations.

The new guaranteed notes will be guaranteed, on a joint and several basis, by GMAC Latin America Holdings LLC, GMAC International Holdings Coöperatief U.A., GMAC Continental LLC, IB Finance Holding Company, LLC and GMAC US LLC, which are all subsidiaries of GMAC. The note guarantees will be senior obligations of each note guarantor and will rank equal with all existing and future senior debt of such note guarantor and will rank senior to all subordinated debt of the guarantor.

In addition to the full impact of the exchange offer and its balance sheet impact, DBRS’s review will consider the impact of any successful conversion to bank holding company (BHC), GMAC’s access to Troubled Assets Relief Program (TARP) funds and the other benefits of becoming a BHC as they relate to funding, capitalization and the overall business model. Finally, DBRS’s review will evaluate GMAC’s near-term liquidity prospects, which include the Company’s ability to avoid the breach of certain covenants that could have a negative impact on liquidity. Finally, the negative review status reflects DBRS’s concerns that failure to execute on GMAC’s plans will add significant noteworthy downward ratings pressure.

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