Moody's may downgrade GMAC

Moody's Investors Service said its ratings for GMAC LLC remain on review for possible downgrade pending the completion of General Motors Corp.'s sale of its 51% interest in the company to FIM Holdings LLC, a buyer consortium led by Cerberus Capital Management.

The agency said it expects, however, to confirm the Ba1 long-term ratings of GMAC and its subsidiaries upon closing and that the outlook will be negative at closing. The expected Ba1 rating assumes that no factors affecting GMAC's credit profile come to light in the intervening period of time.

Several aspects of the sale enhance GMAC's standalone credit profile, Moody's said, including a sizeable reduction in direct unsecured exposure to GM with a subsequent cap of $1.5 billion; a decrease, albeit temporary, in the firm's retail lease portfolio due to the carve-out from the sale of leases with a net book value of $4 billion; elimination of uncertainty regarding GMAC's liability for GM's pension plans; and upfront payment by GM to GMAC of estimated lease residual support, which until earlier this year had been paid by GM at lease termination.

Constraining the positive implications is an agreement that requires GMAC to continue to dedicate significant capital to originating GM-related auto finance receivables after the sale. Nearly all of GMAC's current auto finance activities relate to its association with GM, and as a result, its asset quality, financing volumes, earnings, and liquidity position continue to be vulnerable to adverse changes in GM's condition, the agency said.

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