Residential Capital LLC, the bankrupt mortgage company, won more time to file an exclusive plan to reorganize while it attempts to settle a dispute between creditors and parent Ally Financial Inc. (ALLY)
By the end of the week, ResCap, Ally and the official committee of unsecured creditors will either agree to a “global settlement” or not, Kenneth H. Eckstein, an attorney for the committee, told U.S. Bankruptcy Judge Martin Glenn in Manhattan today.
Should the committee and Detroit-based Ally fail to reach a deal to drop potential lawsuits against Ally, ResCap will try to file a plan in about 30 days that settles as many other issues as possible, said Gary Lee, an attorney for New York-based ResCap.
“The ongoing mediation is the single most important factor in supporting the extension of exclusivity,” Glenn said. “All of the effort needs to be concentrated on negotiations between the parties, with or without the mediator.”
The meditation is designed partly to decide how much Ally must pay to avoid a lawsuit over what it did before ResCap filed for bankruptcy.
Ally had proposed paying creditors $750 million to settle all claims. The committee opposed that settlement, saying it was too low. Ally may be responsible for as much as $25 billion in ResCap debt, the committee said in court papers.
Lee said that should mediation fail, creditors, Ally and ResCap will have to figure out how to adjudicate $40 billion worth of claims involving mortgage-backed securities
ResCap filed for bankruptcy last year, partly to help it resolve lawsuits brought by investors that purchased mortgage bonds backed by $226 billion worth of home loans. The lawsuits claimed the bonds lost value because many of the loans were bad.
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