NEW YORK, Dec 31 (Reuters) - Standard & Poor's on Wednesday cut its ratings on GMAC and its subsidiary, Residential Capital, to "selective default," citing a debt exchange that paid investors less than face value for their bonds.
The debt exchange and recent approval of GMAC as a bank holding company will enhance the company's liquidity but also illustrate the gravity of its position, S&P said in a statement.
GMAC, the struggling financing affiliate ofCorp , earlier on Wednesday completed a multibillion dollar debt swap designed to bolster its capital. The lender said holders of $21.2 billion of debt will swap their holdings for $15.7 billion of new securities plus cash.
The exchange will ease GMAC's debt burden, though the company fell short of its goal of 75 percent participation in the roughly $38 billion swap. For details click on [ID:nN31548511].
GMAC is the main lender to GM customers and restoring the ailing company to health is key to helping the nation's largest automaker stay afloat.
In addition to paying bondholders less than face value, the exchange will subordinate, or leave in a lower position, bondholders who did not participate in the debt swap, S&P said.
S&P said it plans to reassess its rating on GMAC and Residential Capital soon, factoring in the companies' new debt structure, cash flow projections and business strategies.
S&P cut GMAC's and ResCap's counterparty credit ratings to "SD," or selective default, from "CC." (Reporting by Dena Aubin; additional reporting by Jonathan Stempel; Editing by Leslie Adler) (email@example.com; +1-646-223-6325; Reuters Messaging: firstname.lastname@example.org))