By Joseph Checkler
NEW YORK--A judge Wednesday said he's prepared to send
Residential Capital LLC's liquidation plan to creditors for a vote,
setting the Ally Financial Inc. subsidiary up for approval of the
proposal this fall.
The conditional approval by Judge Martin Glenn of U.S.
Bankruptcy Court in Manhattan of the so-called disclosure
statement, or plain-English version of a company's bankruptcy exit
proposal, came after he overruled the remaining objections and said
the few remaining ones should be dealt with at a later hearing in
the case, the one where he will decide whether to approve it.
ResCap also settled the objections of many parties before the
hearing, including ones from federal housing authorities. The judge
said he wants to see a copy of the document with small changes he
asked for, and then he plans to allow creditor solicitation.
The judge did have some concerns with provisions of the proposal
that release Ally from lawsuits later and made the company make
changes to the ballots that explain that provision to
creditors.
The proposal, filed in early July by ResCap and its official
committee of unsecured creditors, would pay the fraying mortgage
servicer's general unsecured creditors about 36 cents on the
dollar.
"No party is getting everything they wanted," said Kenneth H.
Eckstein, a Kramer Levin Naftalis & Frankel LLP attorney who
represents the creditors' committee. Mr. Eckstein mentioned junior
secured creditors that will get paid 100 cents on the dollar for
the money they were owed before the bankruptcy but are also
fighting for interest accrued since ResCap's May 2012 Chapter 11
filing. That matter is being handled separately, under mediator and
U.S. Bankruptcy Court Judge James Peck.
A lawyer for those creditors said he wouldn't push on the few
objections his group still has, although it will continue the fight
for the interest payments at a separate bankruptcy-court trial.
ResCap's plan to reorganize and ultimately liquidate is based on
a crucial settlement among the company, government-controlled
parent Ally and the creditors' committee, which calls for Ally to
pay $2.1 billion to settle creditor claims. In return, Ally is off
the hook from further liabilities. After the sales of two huge
chunks of assets earlier this year, that settlement loomed as one
of the largest issues in ResCap's 14-month-old bankruptcy. When
ResCap first filed for Chapter 11, the Ally payment was set at $750
million, but it became clear very early that creditors wanted
more.
If the plan is ultimately ratified by creditors and approved by
Judge Glenn at a hearing tentatively set for November, creditors
will receive different amounts of recovery based on which
ResCap-related entity owes them money, but most unsecured creditors
will receive the 36.3 cents on the dollar.
ResCap, once the one of country's largest mortgage servicers and
mortgage lenders, filed for Chapter 11 protection in May 2012 as
litigation over soured mortgage securities mounted and bond
payments loomed. The move was intended to help Ally, which isn't
part of the bankruptcy, to sever itself from those issues so it can
focus on repaying the bailout it received during the financial
crisis.
During its bankruptcy, ResCap struck deals to sell
mortgage-servicing platforms and loan portfolios as a part of
bankruptcy auctions that generated $4.5 billion in proceeds. The
ResCap estate has also racked up nearly $400 million in fees for
the professionals working on its case, including a costly
independent examiner's report that mostly absolved Ally of
wrongdoing in terms of its dealings with ResCap.
(Dow Jones Daily Bankruptcy Review covers news about distressed
companies and those under bankruptcy protection. Go to
http://dbr.dowjones.com)
Write to Joseph Checkler at joseph.checkler@wsj.com
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