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End may be near for ResCap, Moody's says

Last update: May 9, 2008 - 8:32 PM

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Moody's Investors Service Inc. said it believes that General Motors Corp. and Cerberus Capital Management are preparing to pull the plug on ailing home lender Residential Capital of Bloomington.

In a review of ResCap's credit ratings, Moody's said that it "has come to believe that ResCap will no longer receive direct, permanent equity support from its parents."

ResCap is a unit of financing company GMAC, which in turn is owned by GM and Cerberus.

The two companies have already made equity infusions of more than $3 billion to prop up the GMAC unit, which has been bludgeoned by the U.S. housing crisis and concurrent credit crunch.

The ratings agency said that the company already is in a very weak position, with "tenuous liquidity" that is likely to worsen after the company exchanges $12.8 billion in bonds.

ResCap recorded its sixth consecutive quarterly loss in the first quarter, reporting that it was $859 million in the red. Moody's said the company is "likely to incur additional losses over the coming quarters," and is unsure whether ResCap can return to profitability.

DOW JONES NEWS SERVICE

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