ResCap Wins Bankruptcy Court Approval to Repay Ally
Residential Capital LLC won court permission to repay more than $1.9 billion in debt immediately, including $1.1 billion to parent Ally Financial Inc. (ALLY) that the defunct mortgage company borrowed before filing for bankruptcy.
ResCap will make the payments before finishing a plan to distribute more than $4 billion in cash to all creditors, who are owed at least $6.3 billion. ResCap has said the payments will save it more than $3 million a month in interest costs and won’t be unfair to lower-ranking creditors because the money will go to pay senior debt.
The payments are supported by the official committee of unsecured creditors and are related to a deal negotiated last month among Ally, ResCap and its major creditors, ResCap said in court papers.
“From a purely economic perspective it makes sense to pay down those claims,” Marc Puntus, a ResCap financial adviser with Centerview Partners LLC, said in court today.
ResCap, based in New York, filed for bankruptcy last year with plans to sell its mortgage businesses and resolve lawsuits brought by buyers of mortgage bonds backed by home loans.
The payments approved today by U.S. Bankruptcy Judge Martin Glenn in Manhattan include $800 million for junior secured noteholders.
After the ruling, Ally’s 6 percent bonds that mature in 2019 rose more than 1 percent to 99.93 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
Glenn overruled an objection from noteholder Berkshire Hathaway Inc. (BRK/A), which argued that it will be difficult to get the cash back from Ally should a court later rule that the auto lender wasn’t entitled to the payment. Detroit-based Ally is majority-owned by U.S. taxpayers after receiving a government bailout.
The case is In re Residential Capital LLC, 12-bk-12020, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
-- Editors: Stephen Farr, Michael Hytha
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