General Motors Corp.'s (GM)  bankruptcy filing will likely have  limited immediate ratings implications on outstanding auto related ABS deals issued by GMAC, Fitch Ratings said.

"The  largest  potential  impact  on transaction performance will likely result  from  meaningful  declines  in retail and wholesale values on GM manufactured vehicles," said Fitch Senior Director Ravi Gupta. "These declines may  arise  from  potential post-bankruptcy developments such as further declines  in  consumer demand for new and used GM manufactured vehicles, brand  reductions  or eliminations, and disorderly reductions in a large number  of  franchised  dealers  and their existing vehicle inventories, among other factors.’

However, Fitch analysts stated that the  government has made clear its intention to support GM throughout this bankruptcy. The government's support includes making funds available to  ensure  continued  manufacturing operations, a viable supplier base, retail  and  wholesale  financing  capacity  as well as certain dealer support.

"While  its  unclear  if  this  support  will  result  in  an  expedited restructuring   and   exit  from  bankruptcy,  it  may  limit  potential significant immediate asset performance deterioration," Gupta said.

The rating agency also  does not think that there is a heightened chance for a servicing  disruption for any outstanding ABS deal. The GM filing is not  expected to have any immediate financial ramifications on GMAC, which  serves as  the  primary  servicer  for  all  deals. GMAC,  via a  separate  ownership  and  significant  government  support  and funding, should  be able  to  maintain  operations  and  ongoing  capacity  to effectively  continue servicing the assets and fulfill all its servicing obligations.

Fitch  now  rates  around $14.7 billion in outstanding auto loan,  auto  lease  and dealer floorplan ABS issued by GMAC and supported by financings that are related to GM manufactured vehicles.

In terms of auto loan ABS, Fitch said that the potential declines in wholesale values of GM manufactured vehicles might  affect performance  for GMAC-issued auto loan ABS. 

Although Fitch does not think there will be  material  increases in borrower default frequency resulting from the  filing, wholesale value declines will cause lower recovery rates  of  future  defaults, ultimately causing higher lifetime net losses  for  each  auto loan pool. It seems, however, Fitch said that GM, via government support,  will  be  able  to  honor vehicle warranties  as well as ensure availability of parts and services. 

GM  has also  meaningfully  reduced  new  vehicle  production to better align existing supply inventory with reduced demand. Both factors might  lessen  the overall negative impact to used vehicle values.

The rating agency  now rates outstanding auto loan ABS transactions issued by GMAC   totaling roughly $3.4  billion  in  outstanding  notes. It also rates a deal issued by another sponsor that  is  supported  largely  by  GM vehicle-related loans sold by GMAC to the issuer.

When it comes to auto lease ABS, wholesale  vehicle  value  declines  could  also  have  some  near  term implications for lease-end residual value realizations, according to the rating agency. As both Chrysler and  GM  seek  to  reduce their dealership bases, more  vehicles might be forced into the wholesale supply, thus impairing the overall market's wholesale values.

As  with auto loan ABS, the rating agency does not expect material increases in lessee  default  frequency  for  lease  securitizations, although similar severity implications may apply.

Taking to account the above,  Fitch thinks a GM bankruptcy's primary risk to lease securitizations is the deterioration in near-term residual  value  performance. 

If  there were to be material weakness in residual  realizations  in  the next 6-to-12 months, 2006 and early 2007 vintage  lease  deals would be more exposed to this stress, Fitch analysts. This is considering their heavy  concentrations  in  near-term  residual  value maturities. But, these  transactions  have  generally built in  considerable loss protection  to  date,  because of the non-declining nature of their credit enhancement structures, the rating agency said.

All  rated  GM  lease  securitizations  can support  base  case residual losses consistent with the worst historical  experience.  Because of this, the rating agency  does  not expect considerable  rating volatility  in  the case of a GM bankruptcy. But, if residual value
deterioration  is  worse  than  expected in the near-term or protracted and impairs the deals'  ability  to  build  credit enhancement, rating actions might be necessary.

For dealer floorplan ABS transactions, Fitch  anticipates that  the  GM filing will  have a negative impact on new vehicle sales levels at existing dealers, therefore weakening the financial profile of the franchised  dealer  base and potentially increasing dealer bankruptcies. Additionally,  GM’s filing could accelerate the phase out of certain brands already   indicted   as  part  of  their  overall  restructuring  plans, potentially placing  respective  dealers  under  added  financial
distress, Fitch said.

But, the rating agency said that the targeted dealers generate a relatively small portion of GM’s
overall  new vehicle sales. Additionally, GM has indicated its intention to  orderly  phase-out  dealers  through  the  year and support existing inventories. Considering the  government’s  recent  capital  injection and potential funding capacity through its bank subsidiary, GMAC should also be  able  to  provide adequate financing to the outstanding inventory of vehicles  for  GM  dealers,  at  least  on short term basis. Should this occur,  the  overall  negatively  impact the dealer floorplan ABS may be limited.

The rating agency downgraded  its  outstanding GMAC related dealer floorplan ABS on
April  14  and  placed  all deals on Rating Watch Negative following  continued  system-wide  deterioration  in  the  domestic auto industry  and  the bankruptcy risk of GM. SWIFT X had previously entered amortization   and  is  accumulating  principal  pending  its  near-term maturity  date  while  SWIFT  XI  will enter early amortization due to a trigger  event  associated  with  a  GM  Ch.  11  filing.

Should monthly payments  rates and losses not material deteriorate from current levels, both  transactions  should  repay  full  principal  within  the next few months.  SWIFT  2007-AE1  and SMART, while structured with significantly more  credit  enhancement  than  the previous SWIFT transactions, do not contain  a  similar  trigger  event  and  will  continue  to  revolve in accordance with their transaction documents.

Details About the Bankruptcy

GM and three of its domestic subsidiaries filed for Chapter 11 protection today in the U.S. Bankruptcy Court for the Southern District of New York.

The 101-year old Detroit automaker listed $82.3 billion in assets and $172.8 billion in debt. It expects to emerge from bankruptcy in the next 60 to 90 days through a 363 sale of its assets to a newly reorganized GM.

"The court-supervised process we are pursuing provides us with powerful tools to accelerate and complete our reinvention, as well as strong safeguards for our customers and our business," said Fritz Henderson, president and chief executive of GM, in a statement.

GM's deal with the U.S. Treasury, the federal Canadian and Ontario governments, and the United Auto Workers and Canadian Auto Workers unions will leave 60.8% of GM's common shares owned by the U.S. Treasury, while 11.7% will be held by the Canadian and Ontario governments, 17.5% by the new voluntary employee beneficiary association (VEBA) plan, and 10% by GM for unsecured bondholders and other unsecured creditors.

GM, which employs 244,500 workers spread between 34 countries, will reduce its headcount of salaried employees to 27,200. It did not include its foreign operations in Europe, Latin America, Africa, the Middle East or Asia Pacific in the Chapter 11 filing.

The company sells the bulk of its automobiles in the U.S., followed by China, Brazil, the U.K., Canada, Russia and Germany.

GM said that after the bankruptcy, its annual vehicle volume will decline to 10 million vehicles, compared with 15 million to 17 million of annual vehicle sales from 1995 through 2007.
Post-bankruptcy, the company expects that it will be left with $17 billion in consolidated debt and $9 billion in 9% preferred stock, which is payable on a quarterly basis. There will be $2.1 billion in preferred shares held by the Treasury, and $6.5 billion in preferred shares which will be issued to the new VEBA.

Judge Robert Gerber is presiding over the bankruptcy, filed under case number 09-50026. GM subsidiaries that also filed are Chevrolet-Saturn of Harlem, Saturn and Saturn Distribution Corp.

In a separate announcement, GM Europe said it has arranged €1.5 billion of bridge financing from the German government.

Additionally, GM has secured $33 billion in debtor-in-possession financing to fund its ongoing operations, as well as support any other financing needs.

The automaker plans to focus on selling its core brands — Chevrolet, Cadillac, Buick and GMC -— through 3,600 dealerships, from its existing 5,969 dealer network. Next year, GM plans to launch its Chevrolet Volt extended range electric car.

"The new GM will play a critical role in the future of the automobile, and assure that the U.S. has a strong stake in this rapidly changing global manufacturing industry," Henderson said.

Weil, Gotshal & Manges attorneys Harvey Miller, Stephen Karotkin Joseph Smolinsky are serving as lead counsel for GM, which is also being assisted by Jenner & Block and Honigman Miller Schwartz & Cohn.

Al Koch of AP Services, an affiliate of AlixPartners, is providing restructuring advice to GM, which is using Morgan Stanley, Evercore Partners and the Blackstone Group for financial advice.

Cravath, Swaine, & Moore is providing counsel to GM's board.

Wilmington Trust is serving as the indenture trustee for the largest group of unsecured debt holders, representing $22.7 billion in securities. The UAW follows as the next largest unsecured claims holder representing $20.5 billion in employee obligations. Deutsche Bank is the third largest unsecured claims holder, representing the holders of $4.4 billion in bonds.

Another organization called GM Bondholders Unite has appointed White & Case financial restructuring and insolvency group head Thomas Lauria to represent its bondholders' interests.
On Tuesday, the New York Stock Exchange will delist GM's shares, which have traded at a range of 74 cents to $18.18 each over the past year. On Monday morning, the company's stock increased 32% to 98 cents a share.

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