Moody's cuts Residential Capital, GMAC

Moody's Investors Service said it downgraded Residential Capital, LLC's senior debt ratings to Ba3 from Ba1.

In connection with the downgrade, Moody's said it also lowered the senior unsecured rating of parent GMAC LLC to Ba2 from Ba1 and its preferred stock to B1 from Ba3. The action reflects heightened, continuing risks that could hurt GMAC's capitalization, liquidity profile and profitability, the agency said.

The outlook is negative. This concludes a rating review that began on Aug. 16, at which time the senior debt rating was downgraded from Baa3.

The downgrade follows Residential's $2.3 billion loss in the third quarter. The loss was driven by marks on the company's residential mortgage inventory and mortgage-backed securities, high levels of provisioning and an impairment of goodwill of $455 million. This represents the company's fourth consecutive quarterly loss.

The downgrade and negative outlook reflect the company's significant asset quality issues and potential franchise impairment, the agency said.

"The current market disruption requires ResCap to shift its origination channel, product mix and secondary marketing strategies," Moody's vice president Craig Emrick said in a written statement. "The business model that will return ResCap to adequate profitability is unclear."

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