Ally Financial Inc. (ALLY), the auto lender seeking to dislodge a money-losing mortgage unit in a bankruptcy proceeding, said a group of bondholders has withdrawn its support for the plan.
A bondholder group represented by Talcott Franklin PC sent a notice April 18 to say it’s ending an agreement that had sought to settle claims against Residential Capital LLC, the mortgage unit that declared bankruptcy last year, according to a filing yeesterday from Detroit-based Ally.
If the settlements over residential mortgage-backed securities fall through “it could adversely impact the likelihood that any plan is approved by the bankruptcy court,” Ally said in the filing. Ally “continues to support the RMBS settlements at this time.”
The group is one of two led by Talcott Franklin, the filing said, which represents bondholders seeking to recoup money lost on soured mortgage-backed bonds issued by New York-based ResCap. Another group of investors led by Gibbs & Bruns LLP hasn’t provided such a notice, the company said.
As part of the agreements, the law firms and investors agreed to settle their claims against ResCap for a lump sum. Talcott Franklin recommended all of its clients with mortgage- backed securities claims against ResCap settle with the company, according to a statement last May. Kathy Patrick, a partner at Houston-based Gibbs & Bruns, didn’t respond to an e-mail asking whether the firm would follow Talcott Franklin’s move.
Ally has offered to pay $750 million to cover costs of soured subprime home loans and insulate itself from legal claims. Chief Executive Officer Michael Carpenter said yesterday the funds are like a “hostage payment,” and the subsequent filing indicated the total could climb.
“It is reasonably possible that a settlement could be reached that results in a payment substantially higher than the current $750 million estimate, or that no settlement is reached at all,” according to the filing.
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