DBRS Revises GMAC LLC’s Ratings to Under Developing, Senior at CCC

DBRS has today placed all ratings of GMAC LLC (GMAC or the Company), and its related subsidiaries, Under Review - Developing following the Company’s announced capital and liquidity actions.

Today’s rating action considers GMAC’s announcement that it had received a $7.5 billion capital investment from the U.S Treasury (Treasury). The Treasury’s capital infusion includes $4.0 billion of Mandatorily Convertible Preferred (MCP) membership interests and warrants, which will be used to support the additional volume associated with the agreement to support the origination of Chrysler LLC (Chrysler) related loans. The remaining $3.5 billion of MCP is applied towards the Supervisory Capital Assessment Program (S-CAP) requirement. Under the S-CAP program, GMAC is required to raise $11.5 billion of Tier 1 common or contingent common capital, of which $9.1 billion must be new Tier 1 capital. The $3.5 billion investment by Treasury is considered new capital for GMAC and will be applied towards the total and reduces the level of new capital required to $5.6 billion. DBRS views this transaction as a significant step in the recapitalization of GMAC. Furthermore, GMAC is currently evaluating alternatives to meet the capital requirements, but the Treasury has indicated that it may provide additional new capital.

The rating action also factors GMAC’s improving liquidity position. GMAC’s approval to participate in the Federal Deposit Insurance Corporation (FDIC) Temporary Liquidity Guarantee Program (TLGP) bolsters the Company’s funding profile. This approval, which allows GMAC to issue up to $7.4 billion of lower cost AAA-rated FDIC guaranteed debt, relieves much of the near-term funding pressure. Further, liquidity is bolstered by the Federal Reserve’s granting of a 23A waiver, which permits GMAC to fund a finite amount of GM-related retail and wholesale assets within its Bank. DBRS views this as an important step in achieving the Company’s long-term strategy of funding more auto related assets through its bank, which has recently been renamed Ally Bank (Ally).

DBRS views each of these actions positively, yet risks remain. In total the actions improve the Company’s capital position, access to liquidity, and ultimately provide a degree of stability to GMAC’s balance sheet, while removing much of the near-term refinancing risk. Moreover, DBRS believes GMAC’s agreement to provide financing to Chrysler related products will enhance and diversify GMAC’s retail and wholesale auto loan origination volume. However, negative rating pressure lingers. DBRS remains concerned about the uncertainties regarding the form and timing of the resolution of a General Motors (GM) restructuring and any impact this may have on GMAC’s business and relationship with GM. Further, although the US Treasury has stated that it may provide additional capital support to GMAC, the form and timing of such support remains unclear.

DBRS’s review with Developing Implications recognizes the positive developments, however significant uncertainties remain. DBRS continues to review GMAC’s future earnings potential, its liquidity profile, and its capitalization. Included in its review, DBRS will assess GMAC’s ability to return to profitability. DBRS see this as a challenge given the current operating environment. Moreover, DBRS will review GMAC’s business plan and its strategy for the medium-term given the recent restructuring in the auto industry and the changing landscape for Residential Capital LLC, its residential mortgage lending and servicing unit. Furthermore, DBRS will assess the Company’s plans to raise the additional required capital under S-CAP.

Note:
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.