Bondholders of Residential Capital LLC, the bankrupt mortgage unit of Ally Financial Inc., are ending an agreement to support its reorganization plan.
ResCap’s secured bondholders ended the agreement, Gina Proia, a spokeswoman for Detroit-based Ally, said yesterday in an e-mailed statement. The bankruptcy process continues to move forward, she said.
Ally, the former financing arm of General Motors Corp., is trying to increase its profit to repay U.S. bailouts that gave the Treasury Department a 74 percent stake. ResCap, based in New York, filed for bankruptcy in May with plans to sell most of its assets and resolve legal claims related to residential mortgage-backed securities.
“The agreement between Ally and ResCap’s third-lien bondholders has been terminated by the bondholders,” Proia said in the statement. “Ally’s agreement with ResCap is unaffected by this action, as is ResCap’s agreement with the RMBS investors.”
Ally had said it had the support of a group of the junior secured noteholders. As of June, noteholders included Axa SA’s Alliance Bernstein unit, Appaloosa Management LP and Marathon Asset Management LP, according to a court filing.
The potential deal came after ResCap bondholders including John Paulson’s Paulson & Co. and David Tepper’s Appaloosa Management hired law firm White & Case LLP in January to oppose a bankruptcy.
ResCap’s $2.12 billion of junior secured, third-lien notes dropped 0.3 cent to 100.8 cents on the dollar yesterday, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The securities have climbed from 70.5 cents at the end of last year. ResCap proposed a plan in May that would pay investors 105 cents on the dollar.
Ally Chief Executive Officer Michael Carpenter has said the company contributed $750 million to cover soured loans at the bankrupt mortgage unit to insulate itself from legal claims and “avoid the noise.” He said Aug. 1 on a conference call with analysts that the reorganization is “on a fast track,” after an examiner was appointed to investigate the deal between Ally and its mortgage unit.
“Ally looks forward to continuing to work constructively with junior secured bondholders toward a broader plan,” Proia said in the statement.
The case is In re Residential Capital LLC, 12-12020, U.S. Bankruptcy Court, Southern District of New York (Manhattan).