Ratings

Amid growing concerns about the length and severity of the current economic slowdown, many rated U.S. finance companies have attempted to hunker in their bunkers during the first three months of 2008. As a part of this strategy, they are taking bold steps to secure funding and liquidity for at least the next 12 months in hopes that by next year credit markets will have returned to some degree of normalcy. From a ratings perspective, this is a positive development. However, Standard & Poor's Ratings Services' ratings on finance companies will generally remain under a high level of scrutiny until this economic cycle runs its course.

U.S. finance companies continue to shore up their capital bases, even though spreads have widened considerably. At this point, companies are showing a willingness to do whatever it takes to ensure their solvency and reduce the pressures of margin calls. On the bright side, the ability to tap equity markets is a positive in the current operating environment, since it says a lot about the market's confidence in a company's longer term prospects. During the quarter, CIT was able to tap the equity markets with a $1.0 billion common stock offering accompanied by the issuance of $500 million of noncumulative perpetual convertible preferred stock.

On the debt-financing side, Ford Motor Credit Co. was able to draw down $1.1 billion from a senior unsecured shelf program, but had to offer a hefty 12% yield. Sallie Mae closed a $31.3 billion 364-day asset-backed commercial paper facility to replace the interim facility that was part of its failed leveraged buy-out (LBO) transaction. Access to securitization markets remains tight for many asset classes, with investor interest primarily in the most senior tranches. This is resulting in a higher level of on-balance-sheet financing, especially for automotive finance companies, as they are retaining the subordinate classes of their securitizations. For companies that rely heavily on secured borrowings, we remained concerned that capricious asset values may continue to be a drag on liquidity. To protect against this vulnerability, we are seeing a greater number of companies keeping higher cash balances, extending their liability structures, and reducing funding commitments.

Although the premium demanded to access liquidity has dramatically increased, the silver lining is that most short-term borrowing costs are linked to LIBOR, which has sharply declined during the past year. For example, during the week of May 4, 2008, the three-month LIBOR rate was 2.87, compared to 5.36 a year ago. This downward rate movement is taking some of the pain out of wider borrowing spreads and higher provisioning costs. With respect to asset quality, the new incidents of subprime problem loan exposures have abated as most mortgage originators are only underwriting loans that they can sell to Freddie Mac and Fannie Mae. In terms of commercial real estate, we have witnessed some deterioration in asset quality in the past several quarters and expect further escalation during the next year.

Reflecting this environment, U.S. finance companies will long remember first-quarter 2008 as one of the more difficult they have faced. Companies with diversified income streams, sound balance sheets, and good financial flexibility are best positioned to meet the challenges the remainder of 2008 will likely bring. For now, many rated finance companies are choosing to hunker in their bunkers until this storm passes and wait for brighter days ahead.

Table 1

Company/Issuer Credit Rating*/Comments	Analyst
Advanta Corp.( BB-/Stable/B)
Advanta posted a disappointing quarter, marred by a significant deterioration in its asset-quality metrics. Net income for the quarter was $18 million compared to $21 million in the prior year’s quarter. The magnitude of the decline in net income was obscured by $18.9 million in VISA-related and $4.6 million MasterCard-related gains (both pretax). The managed net interest margin (NIM) increased substantially, by 77 basis points (bps), to 8.04% for the quarter as compared to 7.27% in the linked quarter. Nevertheless, asset-quality metrics weakened due to a weak economy, leading to a further increase in provisions. The net charge-off ratio and the 30+ day delinquency ratio increased to 6.4% and 5.3%, respectively, from 4.1% and 4.3% in the linked quarter. The soft economy also led to a decline in transaction volume of 8.4% from the linked quarter to $3.4 billion. The steep deterioration in asset quality metrics heightens our concern about the company’s ability to support the current stable outlook.	Rian Pressman, CFA
Allied Capital Corp.( BBB+/Stable/--)
Allied had not reported its first-quarter results in time for our AFSA report card. Entering second-quarter 2008, we expect reported earnings to decline because downturns in debt and equity markets will result in unrealized depreciation of the portfolio and fewer realized gains. The implementation of FAS 157 may entail additional write-downs for the second quarter. Concerns about decreased GAAP income are offset, however, by both the improved structure, terms, and pricing of new loans; and by our expectation that higher quality interest and dividend income will improve. Reported earnings will remain subdued and we are wary of credit quality deterioration caused by economic softness, but Allied’s management maintained strong capital and limited growth during 2006 and 2007. The firm should be in a good position to take advantage of investment opportunities in markets that have become lender-friendly.	Jeffrey Zaun
American Capital Strategies Ltd. (ACAS)( BBB/Stable/--)
ACAS had not reported first-quarter results in time for our AFSA report card. Entering second-quarter 2008, we expect reported earnings to decline significantly because downturns in debt and equity markets will result in unrealized depreciation of the portfolio and fewer realized gains. The implementation of FAS 157 may entail additional write downs during the second quarter. ACAS maintained strong growth during frothy markets in 2006 and the first half of 2007, so the firm is more vulnerable to the repricing of risk that has occurred since July 2007. Its capital levels are also lower than our other rated business development companies (BDCs). As with its competitors, ACAS will be able to take advantage of more lender-friendly terms and pricing for its loans. We expect interest coverage metrics to improve in the medium term, but we are wary of credit quality deterioration caused by economic softness.	Jeffrey Zaun
American Express Co. (AMEX)( A+/Stable/A-1)
AMEX reported flat results compared to the linked quarter, although the pretax income (from continuing operations) improved 20% by $225 million. The improvement primarily reflects reduced provisions in its U.S. card segment. The current quarter also includes a $104 million charge related to valuation adjustments on the conversion of the AEIDC portfolio from available for sale to trading and a $70 million gain from the VISA settlement. On a year-over-year basis, the results were mixed, as the top line grew strongly by 11% (including 3% translation gains), but pretax income from continuing operations was down 16%, primarily because of a 48% rise in provisions. Asset quality deteriorated sequentially and compared to the same quarter last year, but we expect AMEX to avoid the worst of asset quality issues due to its spend-centric model and focus on prime customers. However, we remain watchful of asset-quality metrics in the light of the company’s expectation of higher second-quarter loan losses. We believe the CPS acquisition with its strong business franchise will enhance AMEX’s position in the global payments sector, although it will add about $1 billion in intangibles, including goodwill.	John K. Bartko, CPA
American Honda Finance Corp. (AHFC)( A+/Positive/A-1)
Although results for first-quarter 2008 were not available at the time of this publication, the rating on AHFC is supported by Honda Motor Co. Ltd.’s (Honda) credit strength and the consolidated Honda group, given AHFC's essential marketing role as the group's captive finance company. Accordingly, Honda has a very strong economic incentive to maintain the company's financial soundness and business competitiveness, which is reflected in a support agreement between AHFC and its ultimate parent. Honda has a solid track record of maintaining one of the highest levels of profitability among global automakers while improving market share and its presence in North America, Asia, and Europe. Honda's strengths are partially offset by the company's relatively unique challenges and risk factors, such as its highly disproportionate reliance on earnings from North America, exposure to fluctuations in foreign exchange rates as a result of its high proportion of overseas sales, and weak market position in the Japanese domestic market amid softened demand. As a result, we recognize the possibility of a slowdown in Honda's growth during the next few years, particularly due to increasing economic uncertainty in North America. Honda reported record sales and profits for the fiscal year ended March 31, 2008: consolidated sales and operating profit of ¥12.0 trillion and ¥953.1 billion, respectively, representing 8.3% and 11.9% increases over the previous fiscal year. Although Honda's profitability should remain relatively solid during the medium term, Honda projects a 31.8% decline in operating profit to ¥650 billion for the fiscal year ending March 2009 due primarily to unfavorable foreign exchange rates and high raw-material costs. Honda's overall profitability in 2008 is likely to experience additional downward pressure from foreign exchange rates, high raw-material costs, and increased expenses.	Osamu Kobayashi
AmeriCredit Corp.( BB-/Negative/--)
Deteriorating asset quality weakened AmeriCredit’s third-quarter (ended March 31, 2007) operating results. Net income was $38.2 million, down more than 60% from the prior year’s quarter, mostly because of higher provisions for loan losses. In response to the deteriorating economic environment and unstable credit markets, management has taken steps to ratchet back originations and resume asset-backed securities issuance. Beginning in January, AmeriCredit tightened its credit parameters, which reduced new credit approval rates. Subsequent to quarter end, AmeriCredit entered into a forward purchase agreement with an affiliate of Deutsche Bank to allow for the purchase of up to $2 billion in ‘AAA’ securitization notes during the next year. This agreement will enable AmeriCredit to resume executing securitizations, albeit at a significantly higher cost. Although we view these actions favorably, the negative outlook reflects the potential for higher credit losses and reduced profitability.	Rian Pressman
Ares Capital Corp.( BBB/Stable/--)
Ares Capital had not reported its first-quarter results in time for our AFSA report card. With almost all its investments in senior loans, Ares entered the credit market turmoil as the most conservatively positioned of all the BDCs that we rate. At the end of the first quarter, earnings remained good and the company had only two loans on nonaccrual status. The company, which already maintained good capital levels, buttressed these levels through a rights offering. Debt funding remains constrained by capital-market conditions and we are concerned that credit quality may soften because of weakness in the U.S. economy. Overall, however, we expect a strong second half of 2008 because the firm is now able to make loans with improved terms and pricing.	Jeffrey Zaun
Capital One Financial Corp.( BBB+/Stable/--)
Capital One reported a flat quarter on an operating basis, though the bottom line improved significantly as net income from continuing operations grew to $632.6 million compared with $321.6 million in the prior quarter. However, the improvement included VISA-related gains of $200 million and debt retirement gains of $52 million. Lower provisioning (down $146 million) and expense control were offset partially by declines in U.S. card fees. The managed NIM remained almost flat at 6.78% but can gain further from falling interest costs coupled with efforts to replace high-cost debt with deposits (which grew by $4.9 billion). Asset quality is an area of increasing attention for us, as trends in the consumer sector are weakening. Managed charge-offs at Capital One increased 47 bps during the quarter to 3.96% sequentially, while the loan loss allowance was enhanced an incremental $310 million. It is our expectation that the cyclical economic downturn will continue to pressure Capital One’s financial performance in the upcoming quarters—though to a manageable degree.	John K. Bartko, CPA
Caterpillar Financial Services Corp.( A/Stable/A-1)
Although first-quarter 2008 results have not been released, Caterpillar expects total revenues to increase 5%-10% in 2008. Operating performance will ultimately depend on U.S., European, and Asian economic growth in 2008, although the outlook for commodity markets looks strong irrespective of underlying economic growth rates. In fourth-quarter 2007, Caterpillar's total machinery and engine revenues increased 10% (13% for machinery; 4.7% for engines). Continuing recent trends, the U.S. business declined by 11% overall (machinery down 7% and engines down 23%, while financial products increased 6%); Europe/Africa/Middle East increased 35%; Asia-Pacific by 36%; and Latin America by 17%. Despite further increases in core manufacturing costs, the EBITDA margin rose to 14.5% from 14% a year earlier as a result of increases in machinery volume and strong price realization (aided in part by shortages in mining equipment and other pockets).	Gregoire Buet
CIT Group Inc.( A-/Negative/A-2)
CIT’s first quarter was weak. A net loss of $257.2 million was driven by $270 million in consumer-related provisions ($150 million for Home Lending and $120 million for Student Lending) and other miscellaneous items, including a $148 million pretax loss on swaps that had been used to hedge CIT’s now inactive commercial paper program and a $117.5 million pretax market valuation charge associated with $4.6 billion of asset-based lending agreements that CIT has contracted to sell. CIT’s core commercial segments remain profitable (net income of $156.9 million); however, higher funding and credit costs and lower other income (primarily syndication fees and receivables sales gains) pushed commercial segment earnings down more than 40% relative to the prior year’s quarter. Subsequent to quarter end, CIT issued $1 billion of common and $500 million of convertible preferred equity, further bolstering our view of capital adequacy. The negative outlook reflects the pressure that has been placed on CIT’s funding model by the recent turmoil in the credit markets. To achieve a more favorable outlook, CIT will need to demonstrate access to the unsecured or secured debt markets at economically attractive rates, or establish some other viable funding mechanism (possibly through a strategic partner).	Rian Pressman
Discover Financial Services Inc.( BBB-/Stable/A-3)
Discover reported a solid first quarter with net income from continuing operations increasing 14% to $239 million for the quarter from $210 million sequentially. The good operating performance was mainly driven by tight expense control, partially offset by higher provisions. Nevertheless, the NIM for the company remains pressured. The NIM (owned basis) for the three months ended Feb. 29, 2008, declined substantially to 4.05% from 5.88% for three months ended Feb. 28, 2007, driven by declines in the interest yield. The soft economic conditions in the U.S. also negatively affected asset quality. As a result, managed net charge-offs increased to 4.37% for the quarter as compared to 3.85% in the linked quarter. On the other hand, credit card sales volume remained strong at $23 billion for the quarter. The importance of the third-party payment segment to the overall income level continued to grow as transaction volumes witnessed 13% growth (from the quarter ended Feb. 28, 2007). Furthermore, we expect this trend to continue. We consider Discover’s acquisition of Diners Club as a step in that direction. Diners Club will also enhance the company’s global presence. The company should start reaping the benefits in the next several years as it integrates the Diner Club network.	John K. Bartko, CPA
Federal Home Loan Banks( AAA/Stable/--)
The 12 Federal Home Loan Banks combined to report a solid quarter, with net income of $697 million, a 12.2% increase from the $621 million reported in the same quarter last year. This is despite the $78 million loss reported by the Chicago bank due to interest rate volatility negatively affecting derivative and hedging costs, and a $33 million other-than-temporary impairment charge on the company’s private-label mortgage-backed securities portfolio. All in all, the FHLB system has continued to demonstrate its importance as a steadfast source of liquidity for member institutions since the turmoil in the mortgage markets began in early 2007. The increase in lending to members continued in first-quarter 2008, as advances increased 4.3% from year-end 2007 to $913 billion at March 31, 2008. As the mortgage market regains elements of normalcy, advances outstanding may revert to historical levels as member institutions repay their advance balances. Total mortgage loans within the system continue to decrease, as most FHLBs have stopped or vastly curtailed purchasing additional mortgages for their respective portfolios. The ‘AAA’ rating on the FHLB System’s debt continues to reflect the System’s status as a government-sponsored entity and the combined financial strength of the 12 district banks.	Vikas Jhaveri
Ford Motor Credit Co.( B/Stable/B-3)
Ford Motor Credit reported a disappointing first quarter as net results were down materially even compared to recent weak quarters. Pretax earnings amounted to just $36 million, and was hurt by higher depreciation expense from leased vehicles, higher provisions, and larger net losses on derivatives’ fair market valuations. The net financing margin remained flat sequentially, as higher depreciation charges due to weak used-vehicle prices in North America offset slightly eased interest costs. Increasing managed charge-offs, delinquencies, and repossessions prompted higher provisions. The difficult funding environment did not help efforts to reduce on-balance-sheet receivables ($146 million) or increase the managed leverage ratio, while the sale of Japanese operations Primus was a non-event from this perspective. We view positively the decision to suspend the 2008 dividend plan, because of the need to preserve liquidity and because the parent’s short-term liquidity is presently comfortable. We expect the remainder of 2008 to be challenging given the difficult overall operating environment, including the securitization funding market, depressed used-vehicle prices, and lower unit sales expected by parent Ford.	Ernest Napier
Freddie Mac( AA-/Watch Neg/--)
The weak residential mortgage cycle has now lasted much longer than originally anticipated, pushing the expectation for credit-related expenses higher. Freddie Mac's lower core earnings performance, driven primarily by rising credit-related expenses, will continue to pressure capital measures. Credit-related expenses are fast approaching a new peak for Freddie Mac. Its core earnings capacity to withstand the higher credit costs for 2008 and 2009 is significantly lower, given its narrower NIM. Freddie Mac's capital position remains under pressure given the quarterly GAAP losses recently recorded, the expectation for credit-related expenses to remain high, and the strong growth expectations for its core mortgage business. The level of capital commitment to support the core business, regardless of the continued reduction in the original 30% regulatory capital surplus requirement (which for Freddie Mac is now a 20% surplus requirement) remains a key rating factor.	Victoria Wagner
General Electric Capital Corp. (GECC)( AAA/Stable/A-1+)
Notwithstanding its competitive strengths, GECC is still subject to the pressures of the credit cycle. During the first quarter, GE’s total financial services’ net income from continuing operations was off 28% year-to-year–-to $2.5 billion-–with its Commercial Finance unit off 20% (to $1.2 billion) and GE Money (i.e., consumer finance) down 19% (to $1.0 billion). Commercial Finance was affected by an inability to complete certain asset sales on favorable terms, and by higher mark-to-market losses and impairments. Charge-off levels have risen, although these remain moderate. Growth in assets and revenues (up 27% and 7% year-to-year, respectively) remained robust. GE Money was hurt by higher credit costs and lower securitization gains. Consumer-related delinquencies were up markedly, with the North American 30-day delinquency ratio reaching 5.75%, compared to 4.72% one year earlier. Management has stated that it expects full-year financial services earnings to grow 0%-5% year-to-year, down significantly from its prior expectations. We believe this revised guidance could still be aggressive, given the extent of the improvement that would need to occur during the balance of the year.	Scott Sprinzen
GMAC LLC( B/Negative/C)
GMAC reported a first-quarter loss ($589 million, its third loss in a row) that was caused by a large loss at Residential Capital LLC ($859 million), its wholly-owned subsidiary. However, the main factor this quarter was held-for-sale asset valuation charges of $772 million, mostly from the international side of the latter’s business and investment securities (retained interests) losses of $444 million. The auto and insurance businesses performed satisfactorily. Asset quality will remain pressured in the softening economy. Charge-offs, too, spiked this quarter. GMAC provided $1.2 billion of support to Residential Capital LLC via the acquisition at a discount of the latter’s debt, enabling it to book a $480 million gain on retirement. GMAC also extended a $750 million loan facility secured by mortgage-servicing rights. Residential Capital LLC announced the launch of a debt exchange that resulted in its counterparty and certain issue ratings being lowered to ‘CC’ from ‘CCC+’. However, if successful, the exchange would extend near and intermediate maturing debt about two years. This would provide Residential Capital a degree of breathing room.	John K. Bartko, CPA
iStar Financial Inc.( BBB/Negative/--)
Despite $89 million in new loan-loss provisions, iStar turned in a very respectable ROAA of 1.89% during the second quarter. The firm also locked in about $1 billion in financing secured by some its corporate tenant lease assets, which alleviated some of the funding pressure that has lingered since the Fremont acquisition a year ago. In the second quarter, iStar will recognize about $250 million in nonrecurring gains from the sale of timber assets. Although we believe that funding will remain solid through 2008 and that earnings should more than offset credit losses this year, performance may deteriorate if there is a prolonged or severe recession.	Jeffrey Zaun
Leucadia National Corp.( BB+/Stable/--)
Leucadia’s first quarter was better than its earnings may show on the surface. At the time this report card was published, Leucadia had not yet released its earnings; however the company preannounced a noncash loss of $78.5 million on its Americredit investment that will be included in earnings. Because this is the result of mark-to-market values of the company’s investment, and is noncash, we do not view it as a ratings concern. Leucadia’s earnings are subject to volatility because of the nature of Leucadia’s business, and this is incorporated into the rating. Given the current state of markets, we do not expect to see Leucadia harvesting many (if any) investments in the near-term. The company can take advantage of investment opportunities in this market though, because it has a large amount of cash and other liquid assets on its balance sheet. In the first quarter, Leucadia invested in 25.6% of the common stock of Americredit. More recently, the company increased its investment in Jefferies Group Inc. to 19.3% of common stock.	Adom Rosengarten
National Rural Utilities Cooperative Finance Corp. (CFC)( A/Positive/A-1)
CFC reported a solid third quarter ended Feb. 29, 2008, primarily due to loan-loss recoveries and lower interest expenses. CFC recovered $34 million from the loan-loss allowance, while total interest expense as a percentage of average loans outstanding declined to 5.05% from 5.55%, primarily due to lower interest expense on commercial paper and variable-rate debt obligations. Net income and the interest coverage ratio, when adjusted for noncash derivative mark-to-market fluctuations, increased to $62 million and 1.28x, respectively, in third-quarter 2007 from $50 million and 1.25x in 2006. Asset quality remains sound. Further progress was made during the quarter regarding the recovery prospects for a large, troubled credit exposure. Leverage remains satisfactory, but we would not like to see leverage increase substantially from current levels. Despite the turbulence in the credit markets, CFC was active in the third quarter, issuing $700 million of collateral trust bonds. We expect financial performance to remain solid for the remainder of the fiscal year.	Ernest Napier
Nissan Motor Acceptance Corp. (NMAC)( BBB+/Stable/A-2)
Although first-quarter 2008 results were not available at the time of publication, the rating on NMAC is underpinned by the credit strength of the consolidated Nissan group, given NMAC's essential marketing role as the group's U.S. captive finance company. Its ultimate parent, Nissan Motor Co. Ltd. (BBB+/Stable/A-2), has a very strong economic incentive to maintain NMAC's financial soundness and business competitiveness, which is also reflected in a keepwell agreement between NMAC and Nissan. Nissan’s credit strength reflects its track record of strong financial performance with above-average profitability and its good market position in major markets. These strengths are offset by intensifying global competition and a declining trend in profitability and operating cash flow from automotive operations. Following a setback in fiscal 2006, Nissan’s operational and financial performance continued to recover during the quarter ended Dec. 31, 2007. Nissan’s global unit sales grew 13% from a year earlier, led by strong overseas sales. Its EBIT margin was strong at 7.7%. We believe Nissan can maintain solid profitability through sales recovery and ongoing cost-cutting efforts, despite increasing pressure from the model mix, high raw-material costs, and unfavorable foreign exchange rates.	Chizuko Satsukawa
PACCAR Inc.( AA-/Stable/A-1+)
Although first-quarter 2008 results are not available, PACCAR’s worldwide revenues were down 14% at year-end 2007 compared with a year ago, and its operating margin declined to about 8% from nearly 12% a year earlier. We expect results in North America to remain weak for the bulk of 2008, but the company should still generate robust free operating cash flow and maintain strong liquidity. The parent company remains nearly debt-free and had about $2.5 billion in cash and marketable securities at Dec. 31, 2007.	Gregg Lemos Stein
Residential Capital LLC( CC/Watch Neg/C)
On May 2, Residential Capital LLC announced a debt exchange that in our opinion constitutes a ?distressed debt? exchange. Assuming the successful implementation of the exchange, the counterparty rating would be lowered to ‘SD’ (selective default) while the issue ratings would be lowered to ‘D’. We would then reevaluate the company’s position and assign a new counterparty credit rating. Residential Capital LLC reported another poor quarter with an after-tax loss of $859 million representing the sixth consecutive quarterly loss. Driving the loss was held-for-sale asset valuation charges of $772 million, largely from the international side of the business, and investment securities (retained interests) losses of $444 million. We expect continued poor performance at Residential Capital LLC in the upcoming quarters as the company continues to shed risk and delever the balance sheet. GMAC provided $1.2 billion of support to Residential Capital LLC in the first quarter via the acquisition at a discount of Residential Capital LLC debt and the subsequent cancellation of such debt. Subsequent to the quarter, GMAC also extended a $750 million loan facility secured by mortgage servicing rights. We also expect additional support in one form or another to be necessary. The company is exploring various strategic alternatives with regard to extending its maturing debt and enhancing its liquidity position.	John K. Bartko, CPA
SLM Corp.( BBB-/Stable/A-3)
SLM Corp., commonly known as Sallie Mae, had a mediocre first quarter as recent legislative changes and credit market disruptions put further pressure on core student loan spreads. Excluding nonrecurring expenses, core earnings net income was $254 million, compared with $251 million a year ago and a loss of $139 million in the fourth quarter. The improvement in profitability reflects an increase in student loan originations and less loan provisioning. In February 2008, Sallie Mae closed a $31.3 billion, 364-day, asset-backed commercial paper facility to replace the interim facility that was provided as part of the failed LBO transaction. We remain concerned that significant refinance risks exist because of the short-term nature of this facility. Recently, many student lenders, including Sallie Mae, have expressed that given the increased cost of borrowing, it is no longer profitable to originate federal student loans. As a result, new legislation could be passed shortly that would allow the Department of Education to purchase FFELP loans. This legislation should enable Sallie Mae to remain active in originating federally sponsored student loans.	Ernest Napier
Textron Financial Corp.( A-/Stable/A-2)
Textron Financial turned in another in a long string of healthy quarters, albeit with increased provisioning. The firm’s aircraft and golf segments had the strongest performance, but distribution finance also showed asset growth after several quarters of low, or no growth accompanied by margin compression. Textron Financial’s lending segments are all exposed to cyclicality. Provisions increased markedly in the first quarter, to $27 million from $5 million in first-quarter 2007. We expect further cyclical pressure on asset growth and asset quality, but risk management has improved since the 2001–2002 downturn, and the firm has divested noncore lending operations. Furthermore, the company’s aircraft lending business may remain robust despite softening business conditions for the other segments. The economy may limit profit growth in the medium term, but we expect consistent performance from Textron Financial.	Jeffrey Zaun
Toyota Motor Credit Corp. (TMCC)( AAA/Stable/A-1+)
Although first-quarter 2008 results are not available, the rating on TMCC is supported by the credit strength of Toyota Motor Corp. (Toyota; AAA/Stable/A-1+) and the consolidated Toyota group. TMCC plays an essential marketing role as the group's captive finance company in the U.S. Accordingly, its ultimate parent Toyota has a very strong economic incentive to maintain the company's financial soundness and competitiveness, as reflected in credit support agreements between Toyota and Toyota Financial Services (TFS), and between TFS and TMCC. For the nine months ended Dec. 31, 2007, TMCC's total financing revenues increased by 24% from the corresponding period of the previous year to $6,048 million. While strong sales of Toyota and Lexus vehicles led to increased retail and lease contract volumes and higher financing revenues, TMCC's net income for the nine months decreased by 65% from the previous year to $118 million. Provisions for credit losses increased to $543 million in the first nine months of 2007 from $268 million in the same period of 2006. Leasing accounted for 55% of total financing revenues, while retail financing and dealer financing generated 37% and 8%, respectively. As of Dec. 31, 2007, TMCC reported total assets of $80.4 billion, with $53.5 billion in net finance receivables and $18.3 billion of net investment in operating leases. Total debt and total shareholders' equity were $68.3 billion and $5.2 billion, respectively.	Osamu Kobayashi
Western Union Co. (The)( A-/Stable/A-2)
Western Union had a strong first quarter. In its core consumer-to-consumer money transfer business, revenue and transaction growth each grew by a strong 14%, reflecting continued robust product demand, especially in international markets. (International market revenue and transactions grew by 19% each.) Operating margins remained relatively stable at around 26%, excluding restructuring charges. With an eye toward expanding operating margins by up to 50 bps in 2009, Western Union incurred $24 million of restructuring charges during the quarter, mostly for the closure of its union operating facilities in Missouri and Texas. (These operations will be transitioned overseas or to third-party providers.) Western Union’s strong operating cash flow, which we expect to total around $1.2 billion in 2008, continues to support the current rating.	Rian Pressman, CFA
*Ratings are as of May 5, 2007.

Table 2

Recent Rating/Outlook/CreditWatch Actions*
Company	To	From	Date	Reason
CIT Group Inc.	A-/Negative/A-2	A/Stable/A-1	March 17, 2008	The rating action takes into account the pressure that global capital market dislocation is having on CIT's funding model, the prospect of diminished earnings, and continued exposure to underperforming consumer businesses.
Euronet Worldwide Inc.	BB/Positive/--	BB/Watch Pos/--	March 27, 2007	The action reflects the firm's ending of its bid to acquire MoneyGram (BB/Watch Neg/--) in an all-stock transaction. The positive outlook reflects improvement in its performance and financial strength.
Freddie Mac	AA-/Watch Neg/--	AA-/Negative/--	May 6, 2008	The action was a result of expected lower earnings for 2008 and 2009 and quarterly earnings volatility that is reaching beyond the tolerance for the 'AA-' rating.
Fremont General Corp.	D/--/--	CC/Watch Neg/--	March 18, 2008	The downgrades are based on Fremont's announcement that it has "determined to delay" payment on its senior notes. We believe this delayed payment will ultimately result in a default of all of the company's financial obligations.
GMAC LLC	B/Negative/C	B+/Negative/C	April 24, 2008	The rating action reflects our concerns regarding Residential Capital LLC's stressed condition, the likelihood that Residential Capital LLC will require additional support, and the concern that GMAC LLC will bear the brunt of future support needs.
H&R Block	BBB-/Watch Pos/A-3	BBB-/Stable/ A-3	02-May--2008	The action reflects the progress made toward selling Option One's servicing business and improving liquidity.
MoneyGram International	B+/Negative/--	B+/Watch Neg/--	March 27, 2008	The affirmation follows MoneyGram's announcement that it successfully closed a recapitalization transaction with an investment group led by affiliates of Thomas H. Lee Partners and Goldman Sachs.
iStar Financial Inc.	BBB/Negative/--	BBB/Stable/--	April 18, 2008	The outlook revision reflects the company's exposure to late-cycle deterioration in the commercial real estate markets.
PHH Corp.	BBB-/Negative/A-3	BBB-/Watch Dev/A-3	March 24, 2008	The action followed PHH's statement that it is likely to operate its two businesses--residential mortgage origination and servicing and fleet management--under the existing corporate umbrella for the foreseeable future.
Residential Capital LLC	CC/Watch Neg/C	CCC+/Negative/C	May 2, 2008	The downgrade followed the company's launch of an exchange offer for unsecured bonds that we interpret as a distressed debt exchange.
*Actions taken since Jan. 1, 2008.

Table 3

Contact Information
Credit Analyst	Location	Telephone	E-mail
John K. Bartko, CPA	New York	(1) 212 438-7368	john_bartko@standardandpoors.com
Gregoire Buet	New York	(1) 212-438-4122	gregoire_buet@standardandpoors.com
Pierre Gautier	Paris	(33-1) 4420-6711	pierre_gautier@standardandpoors.com
Diane Hinton	New York	(1) 212-438-4415	diane_hinton@standardandpoors.com
Vikas Jhaveri	New York	(1) 212-438-3693	vikas_jhaveri@standardandpoors.com
Osamu Kobayashi	Tokyo	81-3-4550-8296	osamu_kobayashi@standardandpoors.com
Gregg Lemos-Stein	New York	(1) 212-438-1730	gregg_ lemos-stein @standardandpoors.com
Ernest Napier	New York	(1) 212 438-7397	ernest_napier@standardandpoors.com
Rian Pressman, CFA	New York	(1) 212-438-2574	rian_pressman@standardandpoors.com
Adom Rosengarten	New York	(1) 212 438-7382	adom_rosengarten@standardandpoors.com
Chizuko Satsukawa	Tokyo	81-3-4550-8571	Chizuko_satsukawa @standardandpoors.com
Harm Semder	Frankfurt	49(0)6933999158	harm_semder@standardandpoors.com
Andrew Sharp	New York	(1) 212-438-7979	andrew_sharp@standardandpoors.com
Scott Sprinzen	New York	(1) 212-438-7812	scott_sprinzen@standardandpoors.com
Victoria Wagner	New York	(1) 212-438-7406	victoria_wagner@standardandpoors.com
Jeffrey Zaun	New York	(1) 212-438-2739	jeffrey_zaun@standardandpoors.com