Ally Financial Inc. (ALLY:US), the auto lender majority-owned by U.S. taxpayers, received an oral commitment from bondholders of Residential Capital to support a bankruptcy filing for the mortgage unit that could come early next week, people with direct knowledge of the talks said.
The investors were given material, nonpublic information and are negotiating final details of what they’d receive to settle their claims (ALLY:US), said one person, who declined to be identified because the talks aren’t public. While negotiations could still fail, a court filing may come as soon as the evening of May 13 in New York, a person working with the company said.
The talks could create a “prepackaged” bankruptcy (ALLY:US) for ResCap, which may shorten disputes and court proceedings, and in turn make it easier for Ally to repay a U.S. bailout that left the U.S. Treasury Department with a 74 percent stake. A ResCap bankruptcy would rank among the largest tied to a Treasury-owned asset since General Motors Corp. won court protection in 2009.
The taxpayer rescue of Detroit-based Ally topped $17 billion, and Chief Executive Officer Michael Carpenter, 65, has said a planned initial public offering to raise some of those funds won’t happen until there’s progress on resolving the fate of the mortgage business. President Barack Obama vowed in 2009 to recover “every last dime” of bailout money given to banks.
Ally lined up Fortress Investment Group LLC (FIG:US) to buy the mortgage unit in a court-supervised sale, one of the people said. New York-based Fortress has been in talks since at least March, when people familiar with the matter said the investment firm would pay more than $1 billion to acquire parts of ResCap, including some of its mortgage-servicing subsidiary that handles billing and collections.
ResCap, in another step toward a court filing, secured $1.45 billion in so-called debtor-in-possession financing with Barclays Plc, said another person briefed on the matter. The funds would let ResCap operate while under court supervision.
The bankruptcy plan received conditional approval from the Treasury, which will support Ally and ResCap directors if they decide a bankruptcy is the best course of action, an Obama administration official said earlier this week. The U.S. concluded that addressing ResCap’s mortgage losses will put taxpayers in a better position to recoup their investment in Ally, according to the official.
Opposition to Filing
Investors holding at least $800 million in ResCap debt, including John Paulson’s Paulson & Co. and David Tepper’s Appaloosa Management LP, hired law firm White & Case LLP and partner Gerard Uzzi in January to oppose a bankruptcy.
Gina Proia, a spokeswoman for Ally, Gordon Runte at Fortress, Anthony Morro of White & Case, and Paulson’s Armel Leslie said they couldn’t comment. Tepper didn’t return phone and e-mail messages.
Ally, formerly known as GMAC, confirmed last month that ResCap, run by Thomas Marano, is considering bankruptcy and said Ally’s loss tied to the action could be $400 million to $1.25 billion. Ally had about $101.6 billion in debt outstanding and employed 14,800 workers at the end of December, according to its annual filing.
Marano, 50, was global head of mortgage and asset-backed securities at Bear Stearns Cos. before that company’s 2008 collapse. In April of that year, he joined ResCap as non- executive chairman and an employee of Cerberus Capital Management LP, the New York-based investment firm. He became a ResCap executive later that year.
There are no publicly traded shares in Ally. Minority stakes include 9.9 percent held by a trust for General Motors Co. and 8.7 percent owned by Cerberus. GM was GMAC’s parent until 2006, when Cerberus engineered a buyout. Cerberus then lost control and its stake was diluted in the bailout that began in 2008.
Ally has sought to distance itself from ResCap and Carpenter said during a first-quarter earnings conference call that all transactions conducted between the companies have been done at arm’s-length. The bankruptcy decision will fall to ResCap’s seven-member board, Carpenter said.
ResCap creditors, in a bid to recover more value for their positions, may dispute the independence of the two firms, Fitch Ratings said in an April 13 report.
Ally ranked No. 1 in financing U.S. consumer auto sales for 2011 with more than $40 billion in contracts for new or used cars and trucks, or about 1.5 million vehicles. ResCap was one of the largest originators during the housing bubble of subprime and Alt-A mortgages until record defaults led to billions of dollars in losses.
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