Ally Bank 2011 Annual Report Download - page 96

Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10−K
Nationally recognized statistical rating organizations have rated substantially all our debt. The following table summarizes our current ratings and
outlook by the respective nationally recognized rating agencies.
Rating agency Commercial paper Senior debt Outlook Date of last action
Fitch B BB− Negative February 2, 2012 (a)
Moody's Not−Prime B1 Stable February 7, 2011 (b)
S&P C B+ Stable May 4, 2011 (c)
DBRS R−4 BB−Low Positive February 4, 2011 (d)
(a) Fitch downgraded our senior debt to BB− from BB, affirmed the commercial paper rating of B, and changed the outlook to Negative on February 2, 2012.
(b) Moody's upgraded our senior debt rating to B1 from B3, affirmed the commercial paper rating of Not−Prime, and affirmed the outlook of Stable on February 7, 2011.
(c) Standard & Poor's upgraded our senior debt rating to B+ from B, affirmed the commercial paper rating of C, and affirmed the outlook of Stable on May 4, 2011.
(d) DBRS affirmed our senior debt rating of BB−Low, affirmed the commercial paper rating of R−4, and changed the outlook to Positive on February 4, 2011.
Insurance Financial Strength Ratings
Substantially all of our U.S. Insurance operations have a Financial Strength Rating (FSR) and an Issuer Credit Rating (ICR) from A.M. Best Company.
The FSR is intended to be an indicator of the ability of the insurance company to meet its senior most obligations to policyholders. Lower ratings generally
result in fewer opportunities to write business as insureds, particularly large commercial insureds, and insurance companies purchasing reinsurance have
guidelines requiring high FSR ratings. Our Insurance operations outside the United States are not rated.
On July 20, 2010, A.M. Best removed our U.S. insurance companies from under review with developing implications and affirmed the FSR of
B++ (good) and the ICR of BBB.
Off−balance Sheet Arrangements
Refer to Note 11 to the Consolidated Financial Statements.
Securitization
Securitization of assets allows us to diversify funding sources by enabling us to convert assets into cash earlier than what would have occurred in the
normal course of business. Information regarding our securitization activities is further described in Note 11 to the Consolidated Financial Statements. As
part of these activities, assets are generally sold to securitization entities. These securitization entities are separate legal entities that assume the risk and
reward of ownership of the receivables. Neither we nor those subsidiaries are responsible for the other entities' debts, and the assets of the subsidiaries are
not available to satisfy our claim or those of our creditors. In turn, the securitization entities establish separate trusts to which they transfer the assets in
exchange for the proceeds from the sale of asset− or mortgage−backed securities issued by the trust. The trusts' activities are generally limited to acquiring
the assets, issuing asset− or mortgage−backed securities, making payments on the securities, and periodically reporting to the investors. We may account for
the transfer of assets as a sale if we either do not hold a significant variable interest or do not provide servicing or asset management functions for the
financial assets held by the securitization entity.
Certain of our securitization transactions, while similar in legal structure to the transaction described in the foregoing do not meet the required criteria
to be accounted for as off−balance sheet arrangements; therefore, they are accounted for as secured financings. As secured financings, the underlying
automobile finance retail contracts, wholesale loans, automobile leases, or mortgage loans remain on our Consolidated Balance Sheet with the
corresponding obligation (consisting of the beneficial interests issued by the securitization entity) reflected as debt. We recognize interest income on the
finance receivables, automobile leases and loans, and interest expense on the beneficial interests issued by the securitization entity; and we provide for loan
losses on the finance receivables and loans as incurred or adjust to fair value for fair value−elected loans. At December 31, 2011 and 2010, $78.5 billion and
$72.6 billion of our total assets, respectively, were related to secured financings. Refer to Note 17 to the Consolidated Financial Statements for further
discussion.
As part of our securitization activities, we typically agree to service the transferred assets for a fee, and we may earn other related ongoing income.
The amount of the fees earned is disclosed in Note 12 to the Consolidated Financial Statements. We may also retain a portion of senior and subordinated
interests issued by the trusts; these interests are reported as trading assets, investment securities, or other assets on our Consolidated Balance Sheet and are
disclosed in Notes 6, 7, and 14 to the Consolidated Financial Statements. For secured financings, retained interests are not recognized as a separate asset on
our Consolidated Balance Sheet. Subordinate interests typically provide credit support to the more highly rated senior interest in a securitization transaction
and may be subject to all or a portion of the first loss position related to the sold assets.
The FDIC, which regulates Ally Bank, promulgated a new safe harbor regulation for securitizations by banks which took effect on January 1, 2011.
Compliance with this regulation requires the sponsoring bank to retain either five percent of each class of beneficial interests issued in the securitization or a
representative sample of similar financial assets equal to five percent of the securitized financial assets. The retained interests or assets must be held for the
life of the securitization and may not be sold, pledged or hedged, except that interest rate and currency hedging is permitted. This risk retention requirement
adversely affects the efficiency of securitizations, because it reduces the
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