Residential Capital LLC’s unsecured creditors may oppose plans by the bankrupt mortgage company to quickly sell most of its assets to Fortress Investment Group LLC, a lawyer for the creditors said in court.
The official committee of unsecured creditors will decide in the coming weeks whether it will oppose ResCap’s request for a fast sale of $4 billion of assets, attorney Kenneth H. Eckstein said in bankruptcy court in Manhattan today.
The company is pushing to sell assets to Fortress and ResCap’s parent, Ally Financial Inc., within 90 days, Eckstein said. ResCap is scheduled to seek approval of those sales from U.S. Bankruptcy Judge Martin Glenn next month.
“Those are fast transactions,” Eckstein told Glenn. “Right now, we should assume that June 18 could well be a contested hearing.”
ResCap filed for bankruptcy May 14 with plans to sell most of its assets to Fortress. Ally, a Detroit-based bank that specializes in car loans, supported the bankruptcy filing as a way to resolve legal claims related to mortgage-backed securities sold by ResCap. Ally is 74 percent-owned by the U.S. Treasury after receiving a bailout.
The committee should know whether it will support or oppose the sale proposal after it meets with ResCap managers next week, Eckstein, a lawyer with the Kramer Levin Naftalis & Frankel LLP, said.
Unsecured creditors aren’t likely to get any money from the two sales, he said. Under the U.S. Bankruptcy Code, lenders whose loans are guaranteed by collateral must be paid in full before lower-ranking, unsecured creditors can collect anything.
The committee is planning to investigate any financial transactions ResCap was involved in before filing bankruptcy, Eckstein said. Such investigations are routine in bankruptcy court and sometimes lead to lawsuits that collect money for lower-ranking creditors.
Proposals to give non-bankrupt affiliates of ResCap immunity to certain lawsuits “jumped out at me as potentially significant issues,” Glenn said in court. Such so-called third-party releases must be approved by a bankruptcy judge.
ResCap has proposed dropping potential lawsuits against Ally as part of the sale of mortgage loans and other financial assets to its parent company. Ally agreed to pay $750 million to ResCap to settle any claims against the parent, purchase as much as $1.6 billion of securities if others don’t, and provide $150 million to help finance ResCap’s operations during bankruptcy, according to a company statement.
Thirty-two of the company’s 33 biggest unsecured claims were related to active or potential mortgage-securities litigation, according to court papers. ResCap didn’t give a value for the claims and said it disputes all of them.
The case is In re Residential Capital LLC, 12-12020, U.S. Bankruptcy Court, Southern District of New York (Manhattan).