Residential Capital LLC, the bankrupt mortgage company indirectly owned by the U.S. government, won interim approval to borrow $1.45 billion to help fund the company’s operations.
U.S. Bankruptcy Judge James Peck in Manhattan agreed to approve the loan after initially criticizing the request because it asked him to make a legal finding he said he didn’t have enough evidence to support. The so-called debtor-in-possession loan is being provided by Barclays Plc. (BARC)
“This is just an interim order,” said Peck, who was filling in yesterday for U.S. Bankruptcy Judge Martin Glenn, who will take over the case when he returns. “I believe the DIP loan in this instance is necessary for the commencement of this case.”
The company was in court yesterday seeking emergency approval to refinance two off-shore debt instruments in order to free up cash being held as collateral for the debt.
Peck said he didn’t have enough evidence to find that a part of the loan transaction involved a so-called true sale. Peck agreed to approve the transaction after ResCap agreed to remove the request for the finding from the initial loan request. The company will return to court in about 45 days to seek final approval.
ResCap filed for bankruptcy yesterday with plans to sell most of its assets to Fortress Investment Group LLC. (FIG:US) The company listed assets of $15.7 billion and debt of $15.3 billion in its petition in U.S. Bankruptcy Court in Manhattan. ResCap’s Chapter 11 filing is the biggest this year, based on liabilities, according to data compiled by Bloomberg.
Ally Financial Inc. (ALLY:US), which is trying to repay a U.S. government bailout, is the parent of ResCap.
Ally will have protection against creditor claims in ResCap’s bankruptcy, said Laura Bartell, a bankruptcy law professor at Wayne State University in Detroit.
“ResCap is clearly separate,” Bartell said. “It’s independently incorporated. They have separate debt. They have separate board of directors.”.
The case is In re Residential Capital LLC, 12-12020, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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