Fitch downgrades ResCap

Fitch Ratings said it downgraded Residential Capital LLC's issuer default rating to C from BB-, senior debt to C from B+, subordinated debt to C from B- and short-term issuer default rating to C from B.

The ratings remain on Rating Watch negative.

The downgrade follows the company's announcement of a debt exchange offer. The agency said that upon completion of the exchange, it will downgrade ResCap's issuer default rating to D, indicating a default has occurred in accordance with Fitch's criteria on distressed debt exchanges.

Under the exchange offer, existing debtholders will get new notes in ResCap with extended maturities at less than current par value for maturities after 2008. ResCap will also provide a cash tender option for outstanding debt with up to $1.2 billion in cash. ResCap is undertaking this exchange offer in order to extend debt maturities and to increase its financial flexibility.

According to the agency, under the plan a new first-lien credit facility will have a security interest in ResCap's unencumbered assets, effectively subordinating existing noteholders. Fitch said that noteholders who do not exchange could be further disadvantaged by loss of subsidiary guarantees and become effectively subordinated below the exchange debt.

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