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Residential Capital says it needs more than 3 times more liquidity than its previous forecast


NEW YORK (AP) -- Residential Capital LLC, the mortgage lending unit of GMAC LLC, said Tuesday it needs more than three times more cash to stay in business than it estimated just weeks ago.
ResCap estimates it now needs about $2 billion in cash by the end of June to meet liquidity demands, according to a regulatory filing with the Securities and Exchange Commission. It previously estimated it needed just $600 million by the end of the month.

"The change in the number is not a positive development," said Christopher Whalen, managing director at the consulting firm Institutional Risk Analytics. "ResCap may have to restructure."

If ResCap were to go out of business, charges associated from the loan losses at the mortgage unit would be a "double whammy" for GMAC, said Meagan Hardcastle, a director at financial consulting firm O'Keefe & Associates. Losses would further reduce profitability at GMAC and tie up capital that would normally be redeployed elsewhere to help grow the business, Hardcastle said.

GMAC's former owner, General Motors, which still holds a large minority stake, is also facing its own struggles. On Tuesday morning, GM said it will shut down four truck and SUV plants in North America.

If ResCap were to fail to meet financial obligations and be shut down, the impact on GM would be "mostly reputational," Whalen said. The company would be faced with taking a charge on the value of its stake in the company as well, he said.

As the mortgage lending market deteriorated rapidly, starting in the middle of 2007, ResCap posted large losses. It continues to lose money, putting it in danger of failing to meet financial obligations. ResCap lost $859 million during the first quarter.

In an effort to meet the cash requirements, ResCap increased the size of an existing credit facility with GMAC and is selling some of its assets to GMAC and its majority stakeholder, private equity firm Cerberus Capital Management.
 
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