Bloomberg News

Ally’s ResCap Unit Said to Hire Centerview for Restructuring

November 15, 2011

(Updates with bond prices in the sixth paragraph, analyst’s comment in the 12th.)

Nov. 9 (Bloomberg) -- Ally Financial Inc.’s money-losing mortgage unit Residential Capital LLC hired Centerview Partners LLP to advise on restructuring and negotiations with creditors, said people familiar with the matter.

Ally is weighing options for ResCap, including a potential bankruptcy filing, said one of the people, who declined to be identified because the discussions are private. Centerview is examining what steps will be needed to put ResCap on firmer financial footing before Detroit-based Ally pursues an initial public offering next year, the people said.

Advising ResCap and its board is one of the biggest restructuring jobs for Centerview since Marc Puntus and Sam Greene joined the boutique investment bank in July from Miller Buckfire & Co. to begin a turnaround practice. Ally is being advised by Evercore Partners Inc., the people said. Evercore was founded by Roger Altman, who previously worked with Centerview adviser Robert Rubin at the U.S. Treasury Department in the Clinton administration.

Ally is 74 percent owned by the Treasury and received a $17.2 billion government bailout. Last year, the Treasury failed to find a buyer for ResCap, a separate legal entity that is 100 percent owned by Ally. The unit, which originates residential mortgages, services them and has legacy loan assets, reported a net loss of $442 million for the third quarter. It had $19.1 billion in assets at the end of the period.

Lazard Ltd. and Perella Weinberg Partners LP are advising the Treasury, the people said.

ResCap Lawsuits

ResCap’s $2.12 billion of 9.625 percent notes due in May 2015 plunged 22.8 cents to 56.8 cents on the dollar at 12:25 p.m. in New York to yield 30.6 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

The cost of credit-default swaps on ResCap almost doubled today. Swaps on the unit, which investors use to protect against losses on bonds or speculate on creditworthiness, soared to 51.6 points upfront as of 12:02 p.m. in New York, up from 26 points yesterday, according to data provider CMA.

ResCap is involved in 22 securities lawsuits, Ally Chief Executive Officer Michael Carpenter said on the company’s third- quarter conference call this month. Ally may face $2.2 billion in mortgage costs on top of the $829 million it had set aside through the end of June, CreditSights Inc. analyst Adam Steer estimated in a Sept. 13 report.

‘Top Priority’

“While Ally has and continues to be supportive of ResCap and has invested in ResCap from time to time, most recently in 2009, that should not be interpreted to mean there is a blank check from the parent,” Carpenter said. “It has been, therefore, a top priority of ours to aggressively manage our risks related to the mortgage business.”

The discussions with Centerview are at an early stage and ResCap has yet to decide what actions it will take, the people said. ResCap, run by Chairman and CEO Thomas Marano, interviewed a few firms for the advisory role, said three other people.

Gemma Hart, a spokeswoman for Centerview, declined to comment, as did spokesmen for Ally and Evercore.

Christopher Whalen, managing director at Torrance, California-based Institutional Risk Analytics, said talk of a bankruptcy may be a “negotiating strategy” and that it’s unlikely such an action would limit Ally’s liabilities.

“Ally cannot protect itself nor its insured depository from the power of the bankruptcy court once a trustee is in place for ResCap,” Whalen wrote in a note today. “As soon as the bankruptcy is announced, Ally will lose access to the financial markets and will almost immediately be forced to file itself to avoid attack by creditors.”

Ally said in its conference call it would begin reducing its correspondent mortgage channel, which buys mortgages marketed by third-party lenders. That previously accounted for 84 percent of the bank’s mortgage originations.

Ally had mortgage loan production of $16 billion in the third quarter, down from $20.5 billion a year earlier.

--With assistance from Zachary R. Mider and Zeke Faux in New York. Editors: Jennifer Sondag, Peter Eichenbaum

To contact the reporters on this story: Jeffrey McCracken in New York at jmccracken3@bloomberg.net; Jonathan Keehner in New York at jkeehner@bloomberg.net; Dakin Campbell in San Francisco at dcampbell27@bloomberg.net.

To contact the editors responsible for this story: Jennifer Sondag at jsondag@bloomberg.net; David Scheer at dscheer@bloomberg.net


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