DBRS Takes Various Rating Actions on GMAC LLC and ResCap

DBRS has today downgraded the tendered notes of GMAC LLC (GMAC or the Company) and Residential Capital, LLC (ResCap) to D following the execution of its notes exchange offer. The default status for the exchanged and now-extinguished debt reflects DBRS’s view that certain bondholders, which consented to the exchange offer, were paid out less than face value, which, as discussed in DBRS’s press release dated November 21, 2008, is considered a default by DBRS policy.

All other ratings, including GMAC’s CCC Issuer Rating and ResCap’s C Issuer Rating, remain Under Review with Negative Implications. In DBRS’s opinion, GMAC’s successful conversion to a bank holding company, the recapitalized position of the Company following the receipt of $5 billion in U.S. Treasury (Treasury) Troubled Assets Relief Program (TARP) funds and the execution of its notes exchange offer, will afford GMAC the additional time it needs to manage through the difficult operating environment, while allowing the Company to continue to support General Motors (GM) dealers and retail customers. However, the challenges facing the Company remain significant. GMAC is likely to continue to see depressed retail originations owing to the reduced sales at GM, elevated credit costs attributed to the stressed economic environment, continued pressure on the residual value of automotive lease assets, a potentially higher level of underperforming dealers, and ongoing losses generated by its ResCap mortgage lending unit.

DBRS notes that, as a bank holding company, GMAC gains additional access to liquidity and capital, which provides the Company with increased financial flexibility. As a bank holding company, GMAC gains access to capital under the TARP, and liquidity under the access to the Fed’s discount window. To that end, on December 29, 2008, GMAC announced that it had sold to the Treasury $5 billion of the Company’s preferred membership interests and warrants under the TARP. The preferred membership interests will pay an annual dividend of 8%. Moreover, GMAC may gain additional liquidity should it be approved to issue FDIC-insured AAA debt. However, the cost of this conversion includes increased regulatory oversight and a required change in ownership, as both GM and Cerberus have been required to reduce their respective ownership in GMAC.

DBRS expects to resolve the review in several steps and with various rating actions. In terms of the Issuer Rating and newly issued debt (as the result of the exchange offer), the review and ultimate resolution and rating will consider the final structure of GMAC, its capitalization position, the enhanced liquidity profile and its overall business strategy. Moreover, the final ratings will consider the recovery prospects of newly issued debt as it relates to other forms of outstanding debt. The ratings of existing debt that was not exchanged will reflect the subordinated position of this debt as the result of the newly issued exchanged debt.

The review on ResCap’s rating and the absolute level of the ratings reflects DBRS’s concern that ResCap’s ability to continue as a going concern continues to be at risk, despite the recapitalization of GMAC. The intensifying global credit market disruption has significantly reduced ResCap’s ability to obtain liquidity, capital and other forms of economic support from sources other than GMAC, ResCap’s ultimate parent. Given the headwinds pressuring GMAC’s core automotive finance segment and the need for GMAC to protect its franchise, DBRS believes that economic support from GMAC is limited; however, support has increased somewhat in light of the events discussed above.

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

The applicable methodology is Rating Auto Finance Companies Operating in the United States which can be found on our website under Methodologies.

This is a Corporate (Financial Institutions) rating.