Moody's Investors Service said late Wednesday that it had again downgraded Residential Capital LLC amid concerns that the money-losing mortgage arm of GMAC LLC was facing an unmanageable debt load. The agency said it had cut ResCap to "Caa1," its seventh-highest junk grade, and in turn that it had also cut the rating of corporate parent GMAC to "B2," its fifth-highest junk rating. The downgrade came on the heels of resignations by two independent directors on ResCap's board, which Moody's characterized as key to the interests of creditors. "The absence of independent directors increases the likelihood that ResCap will take actions that are negative for creditors," said Moody's Vice President and Senior Credit Office Craig Emrick. The GMAC/ResCap operating agreement restricts any bankruptcy filing by ResCap; the board must contain at least one independent director, and a majority of the independent directors must approve such action, Moody's said. The agency also expressed concern over a $1.75 billion bank loan to ResCap that is set to mature in July, as well as an additional $875 million in committed, undrawn, unsecured revolving credit that will mature in June. The resignations that concerned Moody's weren't the only change at ResCap; former Bear Stearns mortgage whiz Tom Marano jumped on board as a non-executive chairman this past week as well. Via Bloomberg:
Investors have speculated that ResCap, a unit of Detroit- based GMAC LCC, may join the list of at least 100 mortgage companies that have stopped lending, sought buyers or shut down as housing sales slumped and the value of mortgage-backed assets collapsed. ... Marano and Weintraub have a "long history" in mortgage markets and "they'll bring something, but there's not much you can do if you can't issue securities," said Mirko Mikelic, who helps manage $22 billion as a portfolio manager at Fifth Third Asset Management in Grand Rapids, Michigan. ResCap would have to pay a "huge coupon" to lure bond buyers, making it too expensive for the company to raise cash in the capital markets. "There's very few people who can help out ResCap," Mikelic said. "What they need is somebody who can write a check."
That somebody, apparently, is GMAC itself -- at least according to a filing with the Securities and Exchange Commission Thursday morning. In the filing, ResCap said it had borrowed $468 million from a GMAC on April 18, against a $750 million credit facility established the same day. ResCap put up its mortgage servicing rights as collateral for the loan, it said.