April 13 - 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
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
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
Additional information is available on www.fitchratings.com
The above article originally appeared as a post on the Fitch Wire credit market
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expressed are those of Fitch Ratings.