Residential Capital LLC, the bankrupt former mortgage company, won approval for part of a $2.1 billion deal with parent Ally Financial Inc. that paves the way for the company to craft a plan to repay creditors.
U.S. Bankruptcy Judge Martin Glenn in Manhattan said today that he will sign an order approving an agreement that requires the companies and allies among ResCap’s creditors to back the deal and a related reorganization plan. Glenn will consider approving the settlement as part of ResCap’s proposed reorganization plan later this year.
The 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.”
The approval “enables all parties involved to move forward to the final stages of ResCap’s Chapter 11 cases and resolve the associated mortgage-related issues,” Ally said in a statement.
Ally’s 7 percent bonds due in 2024 rose almost 2 percent to 100.6 cents on the dollar at 1:22 p.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
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.
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., the holding company run by 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).