ResCap Sues Hedge Funds to Stop Demand for More Interest

Residential Capital LLC, the bankrupt mortgage company, sued a group of hedge funds it owes almost $1 billion, accusing them of wrongly pushing for extra interest payments that would cost more than $180 million.

The so-called Ad Hoc Group of Junior Secured Noteholders includes Appaloosa Management LP, Marathon Asset Management LP and Silver Point Finance LLC, hedge funds that invest in the debt of bankrupt companies and push for higher payouts.

ResCap sued the group and the indenture trustee for the notes, which pay 9.625 percent interest and are due in 2015, on May 3 in U.S. Bankruptcy Court in Manhattan.

The company is trying to avoid paying interest at a default rate that has accrued on the debt since it filed for bankruptcy last year. In previous court filings, the hedge funds have claimed the value of ResCap’s current and former assets is so great that the company must pay the extra interest, according to the complaint.

Christopher Shore, an attorney for the Ad Hoc Group, didn’t immediately respond to an e-mailed request for comment on the suit.

ResCap, based in New York, filed for bankruptcy May 14 with plans to sell assets and use the proceeds to repay as much of its debt as possible.

The case is In re Residential Capital LLC, 12-bk-12020, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Steven Church in Wilmington, Delaware at schurch3@bloomberg.net

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net

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