ResCap Wins Initial Approval for $2.1 Billion Ally Deal

Residential Capital LLC, the bankrupt former mortgage company, won initial approval for a $2.1 billion deal with parent Ally Financial Inc. (ALLY) that paves the way for the company to craft a plan to repay creditors.

U.S. Bankruptcy Judge Martin Glenn said in Manhattan today that he will sign an order approving an agreement that requires the companies and allies among ResCap’s creditors to back the proposed deal. Glenn will consider giving final approval to the settlement as part of ResCap’s proposed reorganization plan later this year.

The reorganization plan will lay out details about how creditors owed at least $6.3 billion will split up money from the settlement and about $4.5 billion ResCap raised by selling its mortgage-servicing business and a loan portfolio.

Getting Ally, ResCap and major creditors to sign the plan support agreement “is a singular moment” in the bankruptcy, Glenn said. Without the agreement, “this case returns to square one.”

Under the proposed settlement, Ally will pay $1.95 billion in cash to the ResCap bankruptcy estate, plus $150 million in insurance proceeds, according to a court filing.

Bond Buyers

ResCap, based in New York, filed for bankruptcy partly to help resolve lawsuits brought by buyers of mortgage bonds backed by home loans. The investors claimed the bonds lost value because many of the loans were bad. Such losses account for much of the $25 billion in unsecured debt that the creditors committee claimed ResCap may owe.

Glenn also ordered the unsealing of a report on an $80 million investigation into ResCap’s pre-bankruptcy relationship with Ally.

Some creditors, including Berkshire Hathaway Inc. (BRK/A), the holding company run by the billionaire Warren Buffett, tried unsuccessfully to persuade Glenn to unseal the report before considering the plan support agreement, saying creditors who weren’t part of the deal needed it to decide whether to support or oppose the settlement.

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

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.