www.monitordaily.com/story_page.asp?News_id=20774&type= -
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Published on: 2/22/2008
Last Visited: 2/26/2008
"The ratings actions on Residential Capital LLC are based on the continuing challenges the company faces as it attempts to return to profitability, a still-difficult funding environment, and our perception of the reduced potential for parental support from the ultimate parents, General Motors Corp. and Cerberus Capital Management L.P.," said Standard & Poor's credit analyst John Bartko.
After reporting sizeable losses during the past several quarters ($921 million for fourth-quarter 2007), there is a greater probability of continued losses into 2008, with the likelihood that the larger losses would come earlier in the year, S&P said.This heightens the risk that Residential Capital LLC could breach its $5.4 billion tangible net worth covenant, as year-end tangible net worth was $6 billion.As a result, the probability of required parental support during the near term has increased.
"The ratings actions on GMAC LLC are not only driven by the diminished value of its ownership stake in Residential Capital LLC, but also a challenging funding environment and expectations for a weaker operating environment in the auto lending business," added Bartko.
The following is excerpted from S&P's rating action: