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""Ally Financial"":http://www.ally.com said Friday that it has agreed to extend the maturity of its secured debt facility with its wholly owned mortgage subsidiary ""Residential Capital LLC"":http://www.rescap.com (ResCap).
[IMAGE]Shortly following the announcement, ""Fitch Ratings"":http://www.fitchratings.com issued a research note on the action, saying that Ally's decision is in line with the agency's expectation of continued moderate support to ResCap from its parent company. That moderate support, however, may be short-lived.
Fitch notes that the debt facility was renewed only until May 14, 2012, as opposed to previous debt facility renewals that extended the maturities for one year.
""We believe the short-term maturity extension could signal a potential resolution of Ally's ownership of ResCap in the near future, possibly including a bankruptcy filing of ResCap,"" Fitch said, followed by a concession that its view is not informed by any specific knowledge of any restructuring or bankruptcy plans.
Should ResCap file for bankruptcy, ""Fortress Investment Group LLC"":http://www.fortress.com is expected to be first in line to scoop up the failed mortgage company's assets, according to earlier reports from the _Wall Street Journal_.
The ratings agency says ResCap will likely experience ongoing liquidity pressure as debt maturities continue, including both the debt facility that was extended late last week as well as $338 million of total unsecured debt scheduled to mature in 2012, beginning in May.
[COLUMN_BREAK]Fitch says there are two possible scenarios that could play out. First, Ally could continue to amend and renew its secured debt facilities with ResCap while providing additional financial support to the subsidiary to pay off upcoming unsecured debt maturities. This scenario would rack up a big tab for Ally, and quickly, considering the cost to Ally of supporting ResCap, and its impact on Ally's own liquidity and capital levels, particularly given the fact that Ally itself has $12.0 billion of unsecured debt coming due in 2012.
Second, Ally could choose not to provide support to ResCap, which would likely entail a potential restructuring or bankruptcy for the faltering subsidiary firm. While Ally's creditors should benefit from the severing of all ties with ResCap in the long term, Fitch says there is the potential for litigation in the near term if ResCap's creditors challenge the legal separation.
As of Dec. 31, 2011, ResCap had $390.0 million in unrestricted liquidity and its pro-forma net worth was approximately $288.9 million, following a $196.5 million capital contribution from Ally in 4Q11, according to Fitch.
The agency says ResCap debt facility covenants and servicer agreements require the mortgage subsidiary to maintain a minimum of $250 million in consolidated net worth and $250 million in unrestricted liquidity. In addition, ResCap has another $338 million of unsecured debt maturing in 2012, starting in May 2012.
Ally Financial is 73.8 percent owned by the U.S. Treasury and American taxpayers, after finding itself in need of bailouts in excess of $17 billion back in 2008 and 2009 as the federal government stepped in to shore up the nation's banking system to avert an economic meltdown.
Ally also notified its mortgage industry partners on Friday that the company will significantly scale back its wholesale broker operations and limit purchases of government-backed loans issued by the Federal Housing Administration, Department of Veterans Affairs, and U.S. Department of Agriculture-one more move in the Detroit-based Ally's effort to trim its mortgage ties.
