Fitch Ratings has downgraded the long-term Issuer Default Rating (IDR) of Residential Capital LLC (ResCap) to 'C' from 'CCC'. In addition, Fitch has placed the 'BB-' long-term IDR and senior unsecured debt rating of Ally Financial Inc. (Ally) and its subsidiaries on Rating Watch Negative. (See complete list of ratings affected by this action at the end of this release.)
Today's downgrade of ResCap's IDR follows its decision to not make a scheduled interest payment on $473 million of senior unsecured notes due in 2013. Although ResCap has a 30 day grace period under the note's indenture, Fitch believes that missing the scheduled interest payment has increased the risk of default.
In addition to the missed interest payment, ResCap continues to face upcoming principal debt maturities including $338 million of senior debt notes due between May and June 2012, and $1 billion under Ally's secured credit facility due on May 14, 2012. Absent support from Ally, Fitch believes that ResCap is not likely to be able to meet these scheduled debt maturities, which could result in a potential bankruptcy or debt restructuring.
Fitch has placed Ally's 'BB-' long-term IDR and senior unsecured debt ratings on Rating Watch Negative because of the potential negative implications for Ally if its subsidiary, ResCap, is placed into bankruptcy. Fitch believes that Ally may be more vulnerable to limitations in its access to unsecured funding given its own 2012 debt maturities. While over the long-term Ally creditors could ultimately benefit from an orderly ResCap resolution, near-term complications that could arise from a potential ResCap bankruptcy proceeding, including litigation risk or legal challenges, elevate the risk of a potential Ally downgrade.
In the coming weeks, Fitch will monitor ResCap's ability and willingness to meet its financial obligations and the implications on its parent, Ally. In the event ResCap defaults on its obligations or restructures its debt, Fitch would downgrade ResCap's rating to 'D' or 'RD' depending on the specifics of bankruptcy or restructuring. If Ally faces challenges refinancing its own debt obligations or has reduced access to the unsecured debt markets as a result of potential complications arising from a ResCap resolution, Fitch could consider lowering Ally's ratings.
Established in 1919, Ally operates one of the world's largest automotive finance companies in the U.S., Canada and 15 other countries. With approximately $184 billion in assets as of Dec. 31, 2011, Ally operates as a bank holding company. ResCap is an indirect wholly owned subsidiary of Ally. Through its originations and servicing business, ResCap originates, purchases, and services residential mortgage loans. As of Dec. 31, 2011, ResCap had a total servicing book of $382 billion, making it the fifth largest servicer in the U.S.
Fitch has taken the following rating actions on ResCap:
-- Long-term IDR downgraded to 'C' from 'CCC';
-- Short-term IDR affirmed at 'C';
-- Senior unsecured affirmed at 'C/RR6';
-- Short-term debt affirmed at 'C'.
The ratings on Ally's subsidiaries principally reflect the irrevocable and unconditional guarantee from Ally Financial. Fitch places the following ratings of Ally on Rating Watch Negative:
Ally Financial Inc.
-- Long-term IDR 'BB-';
-- Senior unsecured 'BB-';
-- Viability rating 'bb-';
-- Perpetual preferred securities, series A 'CCC'.
GMAC Capital Trust I
-- Trust preferred securities, series 2 'B-'.
GMAC International Finance B.V.
-- Long-term IDR 'BB-';
-- Senior unsecured 'BB-'.
GMAC Bank GmbH
-- Long-term IDR 'BB-';
-- Senior unsecured 'BB-'.
Ally Credit Canada Limited
-- Long-term IDR 'BB-';
-- Senior unsecured 'BB-'.
GMAC Financial Services NZ Limited
-- Long-term IDR 'BB-'.
GMAC Australia LLC
-- Long-term IDR 'BB-'.
Fitch has affirmed the following ratings of Ally:
Ally Financial Inc.
-- Short-term IDR at 'B'
-- Short-term debt at 'B';
-- Support at '5';
-- Support Floor at 'NF',
-- Long-term FDIC guaranteed debt at 'AAA';
GMAC International Finance B.V.
-- Short-term IDR at 'B';
-- Short-term debt at 'B'.
GMAC Bank GmbH
-- Short-term IDR at 'B';
-- Short-term debt at 'B'.
Ally Credit Canada Limited
-- Short-term IDR at 'B';
-- Short-term debt at 'B'.
GMAC Financial Services NZ Limited
-- Short-term IDR at 'B';
-- Short-term debt at 'B'.
GMAC Australia LLC
-- Short-term IDR at 'B';
-- Short-term debt at 'B'.
GMAC (U.K.) plc
-- Short-term IDR at 'B';
-- Short-term debt at 'B'.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
-- 'Global Financial Institutions Rating Criteria' (Aug. 16, 2011);
-- 'Bank Holding Companies' (Aug. 16, 2011);
-- 'Finance and Leasing Companies Criteria' (Dec. 12, 2011);
-- 'Ally's Debt Extension Could Signal ResCap Resolution' (April 13, 2012).
Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=649171
Bank Holding Companies
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648612
Finance and Leasing Companies Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=659834
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