Moody's Says GMAC May Cover ResCap's $2Bn Debt
Analysts at Moody’s Investors Service project GMAC Financial Services (GOM) will inevitably cover the repayment of $2bn in long-term debt from its Residential Capital (ResCap) subsidiary. The debt matures in 2010. Senior analyst Mark Wasden warned an unexpected deterioration in asset performance or increase in loan repurchase obligations at ResCap could further weigh on GMAC's capital and liquidity. In its Q409 earnings report, GMAC said it rearranged some of its mortgage assets between its subsidiaries. ResCap received a $2.8bn capital contribution through mortgage loans acquired by GMAC from Ally Bank, GMAC debt forgiveness and cash. GMAC said it expects the move will minimize further effects from the legacy mortgage business. Moody's said it expects GMAC to likely provide ResCap with sufficient liquidity support to service its 2010 obligations. However, the credit-rating agency said the company's long-term support and ownership of ResCap is more questionable due to the lack of strategic fit between the companies. Moody’s warned that if GMAC discontinues its support, ResCap may default on its obligations. If that happens, Moody’s projects bondholders’ recovery would be less than 50%. “ResCap has recorded thirteen consecutive quarterly losses, its liquidity position is tenuous, capital insufficient and franchise impaired," said Moody's vice president and senior credit officer Craig Emrick. GMAC, facing financial pressure in the midst of the mortgage financing downturn, is in the process of rearranging and streamlining its residential lending operations. GMAC announced Monday it is relocating the headquarters of its Ditech division, which operates under the ResCap umbrella. By moving the Ditech operation to GMAC’s corporate center in Fort Washington, Pa., the company said it will improve operational efficiencies by sharing common infrastructure between both the Ditech and GMAC Mortgage for its consumer lending channel. GMAC purchased Ditech in 1999 and the business currently operates out of Costa Mesa, Calif. GMAC said the Ditech operation was not performing up to expectation in its previous configuration, adding it expects the move will improve the performance of the Ditech business. “GMAC is committed to the Ditech brand, and its lending activities and service to its customers continue uninterrupted,” GMAC said in a statement. “The company will continue to support the brand with a dynamic mix of marketing and advertising designed to reach its target customers, and this mix may include direct marketing, digital advertising and more traditional forms of advertising such as television spots.” Write to Austin Kilgore. The author held no relevant investments.