S&P keeps GMAC, ResCap on developing watch

Standard & Poor's said the ratings of General Motors Acceptance Corp. and its subsidiary, Residential Capital Corp., remain on CreditWatch with developing implications following the announcement by ultimate parent General Motors Corp. that GM has entered into a definitive agreement to sell a 51% ownership stake in GMAC to a consortium headed by Cerberus Capital Management LP and including Citigroup Inc. and Aozora Bank Ltd.

S&P said it believes that the proposed transaction will result in a lower risk of default at GMAC, compared with that at GM, making it appropriate to sever the absolute linkage in the ratings between the two. Chief among the measures that would afford substantial protection to GMAC creditors are the fact that if GM were to file for bankruptcy, GM would not be able to unilaterally cause GMAC to also file for bankruptcy protection and under U.S. pension regulations, GMAC would no longer be part of the GM control group, therefore the agency said it assumes that GMAC would not be liable for any unfunded pension liability of GM's, should GM's U.S. pension plans be terminated.

Despite the beneficial aspects of the proposed transaction, S&P said GMAC would continue to face some GM-related risks. The value of GMAC's core automotive finance franchise would still be influenced by GM's fortunes, and if GM's competitiveness deteriorates further, this could have a severe effect on the credit and residual loss levels associated with GMAC's retail and wholesale loan and lease portfolios.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.