S&P cuts ResCap deeper into junk on debt re-jig
May 2nd, 2008 | by admin |NEW YORK, May 2 (Reuters) - Standard & Poor’s on Friday cutits rating on Residential Capital LLC (ResCap) further intojunk territory as the mortgage finance unit of GMAC launched arestructuring of over $12.8 billion of debt.
ResCap is proposing to swap some existing notes for newones with a later maturity date and new rates of interest. Formore see [ID:nN02510332].
S&P cut Residential Capital’s corporate credit rating threenotches to “CC,” the 10th-lowest junk level, because therestructuring is a distressed debt exchange. Fitch also cutResCap ratings earlier on Friday.
“A successful exchange would extend debt maturities,providing needed relief, but the action illustrates the gravityof the company’s financial position,” S&P said.
But if the exchange fails, ResCap might file for bankruptcyprotection, S&P said.
The exchange offer pays less than face value to certainResidential Capital bondholders. For that reason, S&P said itprobably will lower ResCap’s corporate credit rating to “SD,”selective default, when the exchange is completed.
In addition, ratings on the affected debt issues would belowered to “D,” although the exchange would not constitute alegal default, the agency added.
S&P said it did not change ratings or its outlook on GMAC,which is owned by General Motors (GM.N: Quote, Profile, Research) and private equity firmCerberus Capital Management CBS.UL .
The debt exchange offer indicates that GM and Cerberus arepursuing these options rather than directly providing GMAC withadditional capital to downstream ResCap, S&P said. (Reporting by Anastasija Johnson; Editing by James Dalgleish)
