Ally Reaches Creditor Deal, Rescap Examiner Lawyer Says
By Steven Church & Dakin Campbell – May 14, 2013 12:01 AM ET
Ally Financial Inc. (ALLY) reached a deal to avoid creditor lawsuits related to the company’s insolvent mortgage arm, Residential Capital LLC, hours before a court-ordered report into the companies’ pre-bankruptcy relationship was to be made public.
The report, by former U.S. Bankruptcy Judge Arthur J. Gonzalez, examines allegations that Ally exerted so much influence over ResCap that the auto lender can be forced to pay its unit’s unsecured debts, which creditors claim may be as much as $25 billion.
Ally, ResCap and a committee representing the unsecured creditors announced the deal in a bankruptcy court hearing arranged yesterday without the usual public notice, Howard Seife, a lawyer representing Gonzalez, said in an interview afterward.
“The parties did represent in court that the economic terms of the deal have been agreed to,” Seife said. They said they expected to sign a term sheet, said Seife, of law firm Chadbourne & Park LLP.
U.S. Bankruptcy Judge Martin Glenn in Manhattan agreed to keep the report sealed while ResCap, Ally and the creditor committee finalize the deal. Should ResCap fail to notify the court that a “global agreement” has been signed, the report will be unsealed at 11 a.m., according to an order issued by Glenn late yesterday afternoon.
Terms Not Announced
Terms of the deal weren’t announced, Seife said. Ally has previously proposed paying $750 million to settle claims that creditors say are worth billions of dollars. Gina Proia, an Ally spokeswoman, declined to comment on the terms.
Ally, ResCap and the committee were in court to ask that the results of the examiner’s report be temporarily sealed while final details of the terms are documented, Seife said. The examiner was prepared to file the report in open court, Seife said.
To keep the examiner report sealed until at least July 3, ResCap must file a so-called plan support agreement related to the settlement. Such agreements are used to implement deals among creditors and other parties involved in a bankruptcy.
ResCap’s 9.625 percent bonds due in 2015 climbed 2.3 percent to 111 cents on the dollar at 3:41 p.m. yesterday in New York trading, according to Trace, the bond price reporting system of the Financial Industry Regulatory Authority.
ResCap, based in New York, filed for bankruptcy last year, partly to help it resolve lawsuits brought by investors that purchased mortgage bonds backed by home loans. The investors claimed the bonds lost value because many of the loans were bad. Such losses account for much of the $25 billion in unsecured debt that the creditors committee claims ResCap owes.
As the deadline for the report approached, bankruptcy attorney Lee R. Bogdanoff predicted that the examiner’s findings may influence settlement talks. Once the report is released, one group or another may gain leverage, depending “on how emphatic the examiner is when he makes his conclusions,” Bogdanoff, co-managing partner of Los Angeles-based Klee, Tuchin, Bogdanoff & Stern LLP, said in a telephone interview last week.
Bogdanoff was the chief author and attorney for the examiner in the $13 billion bankruptcy of newspaper publisher Tribune Co. (TRBAA)
The case is In re Residential Capital LLC, 12-bk-12020, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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