Moody's Investors Service downgraded the ratings of Residential Capital's (ResCap)senior secured bonds to 'Ca' from 'Caa2' and junior secured bonds to 'Ca' from 'Caa3'.
The agency said that ratings of ResCap's unsecured senior debt and unsecured subordinate debt were confirmed at 'Ca' and 'C', respectively. The outlook is negative. The ratings of GMAC (GMAC), ResCap's parent, were not affected by this action (B3 with a negative outlook), Moody's stated in a release.
ResCap's secured bonds have second and third lien claims on the firm's unencumbered assets behind a $3.5 billion GMAC credit facility. Even though the rating agency considers these unencumbered assets to be of poor quality, it previously believed they supported a notching differential between the different debt classifications.
However, as the company is now selling assets to maintain solvency as well as considerably downsizing its operations, there can be no assurance that it will maintain adequate unencumbered assets to support a notching differential between the various classifications of debt.
According to Moody's, ResCap's ratings are based on its consistent quarterly losses (the firm reported its seventh consecutive quarterly loss in 2Q08), weak liquidity position and what the rating agency considers to be an impaired franchise.