DBRS Maintains GMAC Inc. at CCC, Under Review – Developing Following Q3 2009 Results

DBRS has today commented that the ratings of GMAC Inc. (GMAC or the Company) and its related subsidiaries, including its CCC Issuer and Long-Term Debt ratings remain Under Review Developing, where they were placed on May 25, 2009, following the Company’s announced capital and liquidity actions.

Today’s comment follows GMAC’s Q3 2009 earnings release indicating a net loss from continuing operations of $671 million compared with a loss of $3.3 billion on a quarter linked basis and a loss of $2.5 billion for the comparable period a year ago. The reduced loss was the result of increased net financing revenue driven by lower depreciation expense on operating lease assets and lower interest expense. Further, the improved results benefited from the lower loan loss provisioning, which at $704 million, compares positively to $1.2 billion in Q2 2009. In addition, tightening credit spreads in the auto ABS market resulted in a $155 million pre-tax gain on the mark-to-market of the Company’s auto ABS residuals held on its balance sheet. Negatively impacting the quarter’s result was the sizeable reserve build for mortgage “rep and warranty” repurchases of $515 million, an additional $161 million of provisioning for the resort finance assets, and $309 million of bond exchange discount amortization. Excluding these charges, GMAC’s loss for the quarter was approximately $77 million. DBRS views the results as evidence of the progress GMAC has made in refocusing the Company on its core businesses and in working through certain legacy assets that have weighed heavily on GMAC’s financial performance over the recent past. Indeed, the Company’s core Auto Finance and Insurance segments reported quarterly pretax profits of $395 million and $81 million, respectively. Overall results, however, continued to be pressured by losses in the Company’s mortgage operations, which reported a loss of $747 million for the quarter substantially less than the $2.0 billion loss in Q2.

GMAC’s capital position improved during the quarter. GMAC’s Tier 1 capital ratio increased to 14.4% from 13.6% in Q2 2009, as the Company continued to de-risk its balance sheet. Risk-weighted assets declined 10% during the quarter, and were $165.2 billion at Sept. 30, 2009. Further, GMAC’s capital position is expected to be enhanced during the current quarter, as the Company expects to raise additional capital as required by S-CAP.

Near-term liquidity is acceptable and has improved over the most recent quarters. GMAC continues to make progress in transitioning to a bank funding centric model. During the quarter total net deposits at Ally Bank increased 9% to $27.7 billion. While near-term liquidity has stabilized, DBRS is mindful that GMAC’s liquidity position remains pressured with approximately $29 billion of both unsecured and secured debt coming due in 2010. Importantly, since the end of the Q3 2009, GMAC has completed a $2.9 billion issuance of AAA-rated Federal Deposit Insurance Corporation (FDIC) guaranteed debt under the FDIC’s Temporary Liquidity Guarantee Program (TLGP) and an $886 million TALF-eligible auto ABS transaction, which adds a degree of relief to the refinancing pressure. The recent TLGP issuance fulfilled GMAC’s capacity under TLGP.

The ratings remain Under Review with Developing implications. 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 and generate organic capital. Accordingly, GMAC’s ability to reduce the earnings pressure borne with Residential Capital LLC (ResCap), the Company’s 100% owned residential mortgage lending and servicing unit, is a key consideration. As such, DBRS continues to assess the Company’s strategy for ResCap. Given the expected improvement in GMAC’s capital position, the ongoing improving liquidity and funding profile, and continuing de-risking of the balance sheet, DBRS sees more upward ratings pressure then downward ratings pressure. However, given the challenging landscape in the U.S. mortgage financing market, the outlook for a tepid recovery in U.S. housing, and the likelihood of a prolonged recovery for the U.S. auto industry, significant challenges remain.

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.