© 2024 Arizent. All rights reserved.

ResCap Woes Continue

Residential Capital (ResCap), a division of GMAC Financial Services, is set to exchange or redeem $14 billion of its existing debt.

The beleaguered mortgage lender said on Friday that  it would  be offering an exchange of debt for $12.8 billion in outstanding notes and a cash tender offer for another $1.2 billion in debt.

The Bloomington-based firm is currently looking to replace its outstanding bonds worth $12.8 billion with new bonds secured by its assets. It will start the offer this week.

Under the terms of the agreement, the company’s debt will be replaced by either senior notes carrying an 8.5% interest rate due in 2010 or junior secured notes with an interest rate of 9.625% due in 2015.

The company also disclosed in a Securities and Exchange Commission filing that there is a big risk that it will not be able to meet it debt service obligations as well as certain financial covenants in its credit facilities. In the filing, ResCap said that  it also runs the risk of being in a negative liquidity in June 2008

As a result of ResCap's exchange offer for roughly $14 billion of unsecured bonds, Fitch Ratings and Standard & Poor's Ratings Services have downgraded the ratings of Residential Capital, Minneapolis.

For reprint and licensing requests for this article, click here.
ABS
MORE FROM ASSET SECURITIZATION REPORT