Fitch Upgrades ResCap's IDR to 'B'; Outlook Stable

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NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has upgraded the following ratings for Residential Capital LLC (ResCap):

--Long-term IDR to 'B' from 'D';

--Short-term IDR to 'B' from 'D';

--Senior unsecured to 'CCC/RR6' from 'C'.

Fitch has also affirmed ResCap's short-term debt at 'C'. The Rating Outlook is Stable.

Today's rating actions are in conjunction with Fitch's rating action on ResCap's parent, Ally Financial Inc. (Ally). (For additional details on Ally, please see separate release issued on Feb. 2, 2011.) The ratings primarily reflect the implicit support and linkage with Ally, demonstrated by close business integration, inter-company credit lines and capital contributions made by Ally to date. The ratings also reflect actions taken by the company to reduce its legacy mortgage exposure, improvement in earnings and capital levels compared to prior levels. However, current ratings are constrained by the continued weak fundamental profile of ResCap, as well as the lack of ongoing formal commitments or assurances from Ally for future funding or capital support.

Fitch had lowered ResCap's ratings in June 2008, following the company's debt exchange offer. ResCap was severely affected by the housing and capital markets dislocation that started in 2007. From 2006 to 2009, the company reported over $12 billion in net losses. The company has received significant capital contributions from Ally ($2.6 billion in 2008 and $4.0 billion in 2009). These capital contributions were made through contributions and forgiveness of ResCap's outstanding notes, which Ally had previously purchased through the open market at a discount or through its private debt exchange and cash tender offers. The company did not require any capital support from Ally in 2010.

Since 2008, Ally has taken significant steps to de-risk ResCap, including write-downs, asset/loan sales, and settlement on rep and warranty claims with government sponsored enterprises (GSEs). ResCap's balance sheet continues to shrink and was $20 billion at Sept. 30, 2010, down considerably from $58 billion in 2008. The company reported net income of $575 million for 12 months ended Dec. 31, 2010, compared to a loss of $4.5 billion in 2009. Net revenues were down year-over-year, in line with the shrinkage in balance sheet but earnings improved primarily due to actions and charges taken in 4Q'09, which led to lower provision for loan losses in 2010. Tangible net worth as of Dec. 31, 2010 was $846 million, which is greater than the $250 million minimum required under its credit facilities.

As of Dec. 31, 2010, ResCap had a primary servicing book of $367 billion, making it the fifth largest servicer in the U.S. Although, the settlements with the GSEs have reduced a significant portion of repurchase risk, the company is still exposed to potential claims on its non-GSE portfolio. Significant repurchases could adversely impact liquidity and capital levels. ResCap is currently adequately reserved in light of outstanding claims, but if repurchases were to dramatically increase, the company would probably require additional capital support.

The Recovery Rating of 'RR6' on the senior unsecured debt reflects Fitch's view of poor recovery prospects for unsecured creditors as a significant portion of asset base is currently encumbered to the secured creditors.

The Stable Outlook reflects Fitch's expectation that ResCap will continue to take actions to manage its legacy mortgage exposure, maintenance of adequate earnings, capital and liquidity. Ratings could be downgraded if higher than expected losses from rep and warranty charges or credit provisions were to impact tangible capital and cause the company to trip the minimum net worth covenant, and/or if there was an indication by the parent that it would no longer provide capital/funding support to the company. Upward rating momentum would be dependent on a continued material improvement in credit fundamentals or more explicit support provided by its parent.

ResCap is a wholly owned subsidiary of GMAC Mortgage Group, LLC, which is a wholly owned subsidiary of Ally. Through its core origination and servicing business, the company originates, purchases, sells, securitizes, and services residential mortgage loans in the U.S.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Global Financial Institutions Rating Criteria' (Aug. 16, 2010);

--'Finance and Leasing Companies Criteria' (Dec. 13, 2010).

--Rating Linkages in Parent and Nonbank Financial Subsidiary Relationships (Dec. 29, 2010);

--Recovery Ratings for Financial Institutions (Dec. 30, 2009).

Applicable Criteria and Related Research:

Recovery Ratings for Financial Institutions

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=493330

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547685

Finance and Leasing Companies Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=587245

Rating Linkages in Nonbank Financial Subsidiary Relationships

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=577325

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