GMAC LLC’s Ratings Unchanged After GM Bankruptcy, Senior at CCC

DBRS has today commented that the ratings of GMAC LLC (GMAC or the Company), and its related subsidiaries, including its CCC Issuer and Long-Term Debt rating are unaffected by the General Motor Corp.’s (GM) filing for Bankruptcy protection under Chapter 11 of the U.S Bankruptcy Code. All ratings remain under Under Review with Developing Implications where they were placed on May 25, 2009, following the Company’s announced capital and liquidity actions.

The current rating and review status already factored in the potential of a GM bankruptcy filing, as negative rating pressure can result from the uncertainties regarding the timing and ultimate resolution of the restructuring of GM and the impact the filing may have on sales volumes of GM vehicles, which ultimately impacts origination volumes at GMAC. Moreover, DBRS continues to monitor the impact of today’s bankruptcy filing on the GM dealer base, as GMAC continues to have significant exposure to GM dealers through real estate loans and floorplan lending programs. Further, negative rating pressure may potentially arise from a reduction in the residual values of GM products, which may increase loss severities in both the retail and wholesale portfolios.

Above all, DBRS will closely monitor the impact of today’s bankruptcy filing on GMAC’s business and overall, relationship with GM. Given the recent actions of the current U.S. administration and the U.S. Treasury; as well as the outcome of the recent Chrysler LLC (Chrysler) Bankruptcy filing, DBRS believes that GMAC’s contract with GM will be affirmed promptly in the Bankruptcy courts. However, there remains a degree of risk of an adverse action by the Bankruptcy court, which may have a negative impact on the GM-GMAC business relationship.

Given GMAC’s ownership structure, DBRS views GMAC’s ratings as independent of GM’s ratings. GM currently owns 9.9% of GMAC and a blind trust owns an additional 14.6% of GMAC. As part of agreement that allowed GMAC to become a bank holding company, GM has been required to sell its ownership in the trust by Dec. 24, 2011. Additionally, following various capital support actions the U.S. Treasury owns approximately 35.4% of GMAC with Cerberus owning 22% and other Cerberus investors owning the remaining 18.1%.

DBRS’s review with Developing Implications recognizes the recent positive developments, which include the $7.5 billion capital investment from the U.S Treasury (Treasury), GMAC’s agreement to support the origination of Chrysler related retail and dealer related loans, and its improving liquidity position. The Company’s recent 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 FDIC guaranteed debt, provides the Company with access to lower cost funding at a time when its ability to attract unsecured funding remains prohibitively expensive. DBRS expects to rate any issuances under this program AAA, based on the Guarantee. Further, liquidity has been enhanced 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 Ally Bank subsidiary.

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 key 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, the Company’s 100% owned 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.