Ratings Actions & Outlooks
November 21, 2008
Moody's Downgrades GMAC Unsecured Debt
Moody's downgraded the senior unsecured debt of GMAC LLC to C from Caa1, following GMAC's launch of debt exchange offerings for debt in face amount totaling $38 billion. In a related action, Moody's downgraded ResCap's senior unsecured rating to C from Ca.
The downgrade of GMAC's ratings is based on Moody's view that the offering is a distressed exchange, as it results in a diminished financial obligation for GMAC. Distressed exchanges are included in Moody's definition of default.
Holders of GMAC bonds eligible for exchange may receive a combination of new senior notes guaranteed by certain GMAC subsidiaries, subordinated debt, preferred shares, and cash.
Bondholders exchanging GMAC debt and participating in the cash option could receive notional value in the exchange that represents a potentially meaningful discount to the original par value of the exchanged debt. Additionally, while the maturity and interest rate of the new senior notes will closely match those of the old notes, the newly issued preferred shares will have both indefinite maturity and lower priority compared with the old notes.
Also, investors with eligible debt that don't participate in the exchange and holders of approximately $38 billion of non-eligible debt will be structurally subordinated to the new senior notes, as the old notes will not benefit from the GMAC subsidiary guarantees.
S&P Puts Harley-Davidson On Credit Watch
Standard & Poor's placed its long-term ratings for Harley-Davidson, including the 'A' corporate credit rating, on CreditWatch with negative implications.
"The CreditWatch listing is based on the deteriorating outlook for the motorcycle market, weaker operating performance, and concerns regarding the cost and availability of retail motorcycle financing," S&P said.
Revenues declined 7.7% in the third quarter ended Sept. 28, while S&P estimates that EBITDA fell about 26% due to less efficient absorption of overhead.
There is now a considerable and growing used motorcycle market competing with sales of new bikes, the rating agency warned, saying it is concerned that the near-term economic outlook portends a continuation of these operating and financial trends.
Milwaukee, Wis.-based Harley-Davidson is the only major US-based motorcycle manufacturer. Total debt was roughly $3.2 billion as of Sept. 28.
Moody's Downgrades Aleris's Ratings
Moody's downgraded Aleris International Inc.'s corporate family rating and its probability of default rating to Caa1 from B2.
At the same time, Moody's downgraded the ratings on the senior secured term loans at Aleris and Aleris Deutschland Holding GMBH to Caa1 from B2, the rating on Aleris's 9% senior unsecured notes due 2014 to Caa2 from B3 and the rating on its 10% senior subordinated notes due 2016 to Caa3 from Caa1.
The rating outlook is stable.
The downgrade reflects the company's weakened financial position and considers the difficult operating environment facing the company in light of extremely weak end-market conditions in its major markets. Automotive and building and construction represent roughly 45% of revenues.
As market conditions have deteriorated, Aleris's performance reflects a downward trend in earnings and minimal debt protection coverage ratios.This trend was particularly magnified in the third quarter of 2008 and Moody's does not anticipate any meaningful improvement in market conditions in 2009.
Aleris, Bechwood, Ohio, produces aluminum rolled and extruded products and participates in the aluminum recycling and alloy products markets.
S&P Cuts Best Buy
S&P lowered its ratings on Richfield , Minn. electronics retailer Best Buy, including the corporate credit rating to 'BBB-' from 'BBB'. The outlook is stable.
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