Residential Capital LLC must justify the choice of Fortress Investment Group LLC (FIG:US) as lead bidder for its most valuable asset instead of Berkshire Hathaway Inc. (A:US), the holding company run by billionaire Warren Buffett, the judge overseeing ResCap’s bankruptcy said.
During a hearing today in Manhattan, U.S. Bankruptcy Judge Martin Glenn asked ResCap’s lawyers to explain why an affiliate of Fortress deserves to be the lead bidder when Berkshire’s offer has a lower breakup fee.
ResCap, Berkshire and Fortress’s Nationstar Mortgage Holdings Inc. will return to court later today to argue about who should be named the so-called stalking horse for a court- supervised auction of ResCap’s mortgage-servicing unit. Berkshire has offered to match Nationstar’s $2.4 billion price for the unit while reducing the breakup fee to $24 million from $72 million.
Before taking a break from the hearing, Glenn also questioned whether any stalking horse should be named.
“Persuade me why I should approve any breakup fee,” Glenn said, referring to the main benefit given to the lead bidder. A breakup fee and other protections are designed to guarantee interest in an auction, Glenn said.
ResCap, based in New York, filed for bankruptcy last month after agreeing to name Nationstar as the stalking horse for the mortgage unit. ResCap is also proposing to sell a portfolio of loans at a separate auction with its parent, Ally Financial Inc. (ALLY:US) as lead bidder with an initial offer of $1.4 billion.
Ally, based in Detroit, supported ReCap’s bankruptcy filing as a way to resolve legal claims related to mortgage-backed securities. Ally is 74 percent-owned by the U.S. Treasury after receiving a bailout.
The case is In re Residential Capital LLC, 12-12020, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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