NEW YORK (Reuters) – Moody’s Investors Service on Wednesday raised its rating on auto and mortgage lender GMAC LLC by one notch, saying the risk of bankruptcy is reduced because of support from the U.S. government.
Moody’s raised GMAC’s senior unsecured rating to Ca, or 10 steps below investment grade, from C, and said it may raise the rating again. A Ca rating is still one of the lowest possible ratings above default.
The rating upgrade reflects GMAC’s improved liquidity on significant capital injections by the government, its partial ownership by the government, and GMAC’s role in the government’s efforts to prop up the auto industry, Moody’s said in a statement.
GMAC, however, must still raise substantial equity to comply with results of recent government stress tests, Moody’s said.
“Moody’s remains cautious regarding the operating and financial challenges GMAC faces,” the agency said. Private sources of capital are limited and GMAC will most likely need another investment from the U.S. Treasury to raise capital required by the stress tests, Moody’s said.
The U.S. Treasury last month said it was pouring another $7.5 billion into GMAC, a move meant to relieve a scarcity of credit that has crippled the U.S. auto industry. GMAC is the main auto loan provider for General Motors Corp (GMGMQ.PK), which is in the midst of a bankruptcy restructuring that will give the government a 60 percent stake in the automaker.
As part of its deal to receive fresh injections of government support, GMAC has also agreed to provide financing for Chrysler LLC, also in bankruptcy. (Reporting by Dena Aubin, Editing by Leslie Adler)