A nascent General Motors Acceptance Corp. plan to reorganize its business units this year is being tipped as noteworthy for the potential affect it could have on the massive lender's bond issuance activity, execution and credit ratings in the taxable markets. The finance arm of General Motors announced earlier this month it is considering a plan to restructure its residential mortgage lending businesses. Under the plan, GMAC would separate these operations into a new company, which would be called Residential Capital Corp. and would operate independently of its auto finance business.
Analysts say the plan is an interesting one and could result in higher credit ratings and lower funding costs for the residential mortgage business, which may have been hampered somewhat by being linked to GMAC's activities in the auto industry. "GMAC has moved down the credit scale, which is not because of its own doing but because of linkage to the parent company," explained Mark Wasden, v.p. and senior analyst in the financial institutions group at Moody's Investors Service. He said if it goes through with the switch, GMAC would be making a prudent decision. "If liquidity dries up at other finance companies, they can stop originating. But that's not an option here--they have to originate that auto paper," he said.
Mark Tanner, spokesman in Detroit, declined comment beyond what GMAC has publicly said and stressed the plans remain under consideration and would need to be approved by the company's management and board. Its announcement also said any split would be "designed to avoid any adverse effects on the current and future holders of GMAC debt."
Although a distinct entity would presumably be created because it could achieve cheaper funding on its own, Wasden said that's not necessarily the case, because it depends on how well-capitalized GMAC would make the new residential mortgage business. "It's possible the sum of the two parts is greater than the whole," he added.