Standard & Poor's said yesterday it is maintaining its CreditWatch with negative implications on Residential Capital's (ResCap) 'CC' ratings. The rating action was made last Nov. 10.

"The continued CreditWatch now also considers a proposal to restructure two debt issues of a Mexican subsidiary that ResCap currently guarantees," said S&P credit analyst Thomas Connell.

If bondholders accept the proposal, the rating agency would lower its long-term issuer credit rating (ICR) on ResCap to 'SD' or selective default. It will also downgrade ResCap's two debt issues to 'D'.

On March 9, GMAC Financiera, S.A. de C.V. SOFOM, E.N.R. (GMAC Fin), a ResCap Mexican unit, asaod that Adamantine Fund I is proposing to acquire the full ownership of GMAC Fin.

The purchaser will make a capital contribution of 250 million pesos (roughly $20 million) to GMAC Fin. But, as another condition to the deal, GMAC Fin's bondholders will have to agree to ending the guarantee provided by ResCap on GMAC Fin's two bond issues that are still outstanding. Bondholders will also consider other unspecified modifications of the terms and conditions of the two issues at a meeting on March 26.

Depending on the outcome of this process, S&P might conclude that a distressed debt exchange offer has occurred.

Under the firm's rating criteria, a distressed debt exchange offer is seen as a restructuring event and is like to default. In such a situation, S&P will be lowering the issue ratings to 'D'. Additionally, under the agency's criteria, an affiliated entity guaranteeing such issues would itself be rated 'SD.' This assuming that the guarantor's other issues are not impacted.

On Feb. 10, S&P lowered the ICR on ResCap to 'CC' from 'CCC' and maintained the ratings on CreditWatch with negative implications given the impending maturity of two of its senior credit facilities, and the absence of any sign from its parent Ally Financial that it will continue to offer the financial support ResCap would need to meet the upcoming maturities.

Analysts expect to resolve the CreditWatch by April 13, when the facilities come due, although this would depend on the steps ResCap and Ally might take for the time being.

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