Paulson, Tepper Said Among Investors Urging Ally to Back ResCap
John Paulson and David Tepper are among investors urging Ally Financial Inc. to back Residential Capital LLC as the government-owned lender weighs options for the mortgage unit, said three people familiar with the matter.
Paulson & Co. and Tepper’s Appaloosa Management LP are part of a group of bondholders organizing to seek full repayment of ResCap’s debts, said the people, who declined to be identified as the deliberations are private. White & Case LLP represents the group, which holds $800 million of ResCap debt, according to a statement from the law firm that didn’t name the investors.
As Ally, the former financing arm of General Motors Corp., prepares for an initial public offering that will help it repay $17.2 billion in government bailout funds, its mortgage unit faces lawsuits over faulty loans that may wipe out the parent’s profits. Ally is working on a plan to separate itself from those liabilities, which could involve selling ResCap in bankruptcy court, one of the people said.
“A forced ResCap filing would be a big mistake and create significant litigation against Ally,” Gerard Uzzi, a partner at White & Case in New York, said in the statement.
ResCap is working with lenders, Ally and the Treasury Department and aims to devise a solution by March, one person said. The unit may seek permission from bondholders for a bankruptcy filing that would enable an asset sale, according to the person.
Gina Proia, a spokeswoman for Detroit-based Ally, didn’t comment on the bondholder group.
“We decline to comment on speculation,” she said in an e- mail in response to questions about whether Ally is considering a bankruptcy filing for ResCap.
Bankruptcy Concern
Tepper didn’t return a call seeking comment. Anthony Morro, global director of White & Case’s restructuring practice, declined to comment on the members of the bondholder group. Armel Leslie, a spokesman for Paulson, also declined to comment.
The bondholders began organizing after Ally raised the possibility of a bankruptcy, according to an investor in the group, who spoke on the condition of anonymity. Ally can’t legally separate itself from ResCap because it has stripped assets from the unit, the investor said.
“The bondholders are saying, ‘You can try, but we’re going to fight you tooth and nail,’” Adam Steer, an analyst at Brookfield Investment Management Inc., said in a telephone interview.
ResCap Assets
ResCap has $3.5 billion of bonds outstanding, according to data compiled by Bloomberg. Its $2.12 billion of 9.625 percent notes due in May 2015 plummeted 22.6 cents to 56.9 cents on the dollar on Nov. 9 after a report that the unit hired Centerview Partners LLP to weigh options, according to Trace, the bond- price reporting system of the Financial Industry Regulatory Authority. The bonds climbed 0.8 cent to 76 cents on the dollar at 4:18 p.m. yesterday.
Assets at ResCap, once one of the largest subprime mortgage originators, dwindled to $16.8 billion at the end of 2010 from more than $130 billion in 2006. The Treasury, which owns 74 percent of Ally, failed to find a buyer for ResCap in 2010.
ResCap is involved in 22 securities lawsuits, Michael Carpenter, Ally’s chief executive officer, said on a conference call with investors on Nov. 2. The Federal Housing Finance Agency and MBIA Inc. are among the parties that have filed suit against the company, which also faces state investigations into foreclosure practices.
Ally may be raising the possibility of a bankruptcy as a negotiating tactic as it tries to settle those suits, according to Manal Mehta, a partner at Branch Hill Capital in San Francisco.
Negotiating Tactic?
“It’s sort of the trump card that they’re holding out,” Mehta said in a telephone interview. “‘Either negotiate reasonably with us or we’ll put the whole thing into bankruptcy and you’ll get nothing.’”
If Ally does pursue a sale of ResCap through bankruptcy, it may target buyout firms including Fortress Investment Group LLC, Centerbridge Capital Partners LLC and mortgage servicer Ocwen Financial Corp., which all considered bids in mid-2010 in a failed auction for ResCap, people familiar with the talks said in December. Warren Buffett’s Berkshire Hathaway Inc., one of Ally’s largest creditors, may also be approached, the people said.
To contact the reporters on this story: Zeke Faux in New York at zfaux@bloomberg.net; Jeffrey McCracken in New York at jmccracken3@bloomberg.net; Jonathan Keehner in New York at jkeehner@bloomberg.net
To contact the editors responsible for this story: Jennifer Sondag at jsondag@bloomberg.net; Alan Goldstein at agoldstein5@bloomberg.net; David Scheer at dscheer@bloomberg.net
Paulson & Co. Inc.'s president John Paulson
Jin Lee/Bloomberg
John Paulson, president of Paulson & Co. Inc.
John Paulson, president of Paulson & Co. Inc. Photographer: Jin Lee/Bloomberg
Jan. 10 (Bloomberg) -- John Paulson and David Tepper are among investors urging Ally Financial Inc. to back Residential Capital LLC as the government-owned lender weighs options for the mortgage unit, said three people familiar with the matter. Paulson & Co. and Tepper’s Appaloosa Management LP are said to be part of a group of bondholders organizing to seek full repayment of ResCap’s debts. Zeke Faux reports on Bloomberg Television's "Money Moves." (Source: Bloomberg)
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