S&P lowers ResCap

Standard & Poor's said it lowered selected ratings on Residential Capital LLC, including lowering the long-term corporate credit rating to CC from CCC+, following the company's launch of an exchange offer for unsecured bonds that the agency interprets as a distressed debt exchange.

The ratings remain on CreditWatch with negative implications, where they were placed April 24.

The agency said it will likely lower the corporate credit rating on the company to SD (selective default) following a successful execution of the exchange offer, which will pay less than face value to certain ResCap bondholders. In addition, ratings on the affected debt issues would be lowered to D, although the exchange would not constitute a legal default.

A successful exchange would extend debt maturities, providing needed relief, but S&P said the action illustrates the gravity of the company's financial position. In addition, the exchange indicates to S&P that ultimate parents General Motors Corp. (49% owner of GMAC LLC) and Cerberus Capital Management LP (51% owner of GMAC LLC) are pursuing these actions rather than directly providing GMAC LLC with additional capital to downstream to ResCap. The agency believes that if the exchange fails, ResCap might file for bankruptcy protection.

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