Ally Financial Inc.'s (Ally) announcement today that it has agreed to
extend the maturity of its secured debt facility with its wholly owned
subsidiary Residential Capital LLC (ResCap) is in line with Fitch
Ratings's expectation of continued moderate support to ResCap from Ally.
However, we note the debt facility was renewed only until May 14, 2012,
as opposed to previous debt facility renewals that extended the
maturities for one year.
We believe the short-term maturity extension could signal a potential
resolution of Ally's ownership of ResCap in the near future, possibly
including a bankruptcy filing of ResCap. This view is not informed by
any specific knowledge of any restructuring/bankruptcy plans.
We expect ResCap will experience ongoing liquidity pressure as debt
maturities continue, including both the debt facility that was extended
today as well as $338 million of total unsecured debt scheduled to
mature in 2012, beginning in May.
We believe there are two potential scenarios that could play out in the
face of these liquidity pressures.
First, Ally could continue to amend and renew its secured debt
facilities with ResCap as they come due while providing additional
financial support to ResCap to pay off the upcoming unsecured debt
maturities. Under this scenario, Fitch's rating analysis would consider
the cost to Ally of supporting ResCap, and its impact on Ally's
liquidity and capital levels, particularly in light of Ally's own $12.0
billion of unsecured debt coming due in 2012.
Second, Ally could choose not to provide support to ResCap, which would
likely entail a potential restructuring or bankruptcy for ResCap. Under
this scenario, Fitch would likely lower ResCap's rating to 'D' or 'RD',
depending on the specifics of the restructuring or bankruptcy. While
Ally's creditors should benefit from the severing of all ties with
ResCap in the long term, we note there is the potential for litigation
in the near term, if ResCap's creditors challenge the legal separateness
of Ally and ResCap. Under this scenario, we would monitor developments
and could consider lowering Ally's rating if complications arose during
a ResCap bankruptcy proceeding.
As of Dec. 31, 2011, ResCap had $390.0 million in unrestricted liquidity
and its pro-forma net worth was approximately $288.9 million, following
a $196.5 million capital contribution from Ally in 4Q11. ResCap debt
facility covenants and servicer agreements require ResCap to maintain a
minimum of $250 million in consolidated net worth and $250 million in
unrestricted liquidity. In addition, ResCap has $338 million of
unsecured debt maturing in 2012, starting in May 2012.
Additional information is available on www.fitchratings.com
The above article originally appeared as a post on the Fitch Wire credit
market commentary page. The original article, which may include
hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com.
All opinions expressed are those of Fitch Ratings.
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