Ally Bank 2012 Annual Report Download - page 83

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Nationally recognized statistical rating organizations rate substantially all our debt. The following table summarizes our current ratings
and outlook by the respective nationally recognized rating agencies.
Rating agency Short-term Senior debt Outlook Date of last action
Fitch B BB- Rating Watch Negative April 18, 2012 (a)
Moody’s Not-Prime B1 Positive February 25, 2013 (b)
S&P C B+ Positive May 17, 2012 (c)
DBRS R-4 BB-Low Review - Developing May 15, 2012 (d)
(a) Fitch placed our senior debt on Rating Watch Negative and affirmed the short-term rating of B on April 18, 2012.
(b) Moody's confirmed our senior debt rating of B1 and changed the outlook to Positive on February 25, 2013.
(c) Standard & Poor’s affirmed our senior debt rating of B+ and the short-term rating of C, and changed the outlook to Positive on May 17, 2012.
(d) DBRS placed our ratings Under Review - Developing on May 15, 2012.
Insurance Financial Strength Ratings
Substantially all of our Insurance operations have a Financial Strength Rating (FSR) and an Issuer Credit Rating (ICR) from the
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. On February 14, 2013, A.M. Best affirmed the FSR
of B++ (good) and the ICR of BBB.
Off-balance Sheet Arrangements
Refer to Note 10 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 10 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, commercial loans, 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, 2012 and 2011, $68.0 billion and $78.5 billion of our total assets, respectively, were
related to secured financings. Refer to Note 16 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 11 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 investment securities, or other assets on our
Consolidated Balance Sheet and are disclosed in Note 6 and Note 13 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 safe harbor regulation for securitizations by banks. 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 to comply with the regulation. 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 amount of funds that can
be raised against a given pool of financial assets.
We sometimes use derivative financial instruments to facilitate securitization activities, as further described in Note 22 to the
Consolidated Financial Statements.
Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K