Berkshire Seeks Court Examiner To Probe ResCap Deals
By Steven Church - Jun 5, 2012 10:10 AM ET
Berkshire Hathaway Inc. (BRK/A), the holding company run by billionaire Warren Buffett, asked a judge to appoint an examiner to investigate various deals Residential Capital LLC made before it filed bankruptcy.
Berkshire said yesterday in a court filing that it agrees with the official committee of unsecured creditors, which last week asked for permission to investigate ResCap’s transactions with its parent, Ally Financial Inc. Berkshire took the request one step further by seeking an independent probe.
“That investigation must be conducted by an impartial examiner appointed by the court,” lawyers for Berkshire said in court papers. “Investigating potentially improper prepetition transactions between a debtor and its affiliates, and evaluating potential claims arising from those transactions, are quintessential duties of a bankruptcy examiner.”
Berkshire holds more than 50 percent of ResCap’s unsecured bonds and more than 40 percent of its junior secured bonds, according to the filing.
On June 1, unsecured creditors asked U.S. Bankruptcy Judge Martin Glenn for permission to investigate deals that the bankrupt mortgage company made to help Ally avoid billions of dollars worth of potential legal liability.
The committee’s request to look into the deals is routine in large corporate bankruptcies. Berkshire’s is rarer. Results of such investigations are usually given more weight by judges because they are considered independent.
ResCap filed for bankruptcy May 14 with plans to sell most of its assets to Fortress Investment Group LLC. (FIG) Ally, a Detroit- based bank that specializes in car loans, supported the 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.
ResCap has proposed dispensing with potential lawsuits against Ally as part of the sale of mortgage loans and other financial assets to its parent company. Ally agreed to pay $750 million to ResCap to settle any claims against the parent, purchase as much as $1.6 billion of securities if others don’t, and provide $150 million to help finance ResCap’s operations during bankruptcy, according to a company statement.
Thirty-two of the company’s 33 biggest unsecured claims were related to active or potential mortgage-securities litigation, according to court papers. ResCap didn’t give a value for the claims and said it disputes all of them.
Susan Fitzpatrick, a spokeswoman for ResCap didn’t immediately respond to an e-mail seeking comment on the Berkshire filing. Gina Proia, a spokeswoman for Ally, declined to comment on the filing.
Berkshire sought to buy Residential Capital from Ally Financial Inc. (ALLY) before the government-owned company put the home lender in bankruptcy, three people familiar with the matter said last month.
Berkshire would have paid almost nothing up front for the assets, while taking on potential liabilities such as mounting litigation costs and other claims, the people said. Buffett sought to avoid a ResCap bankruptcy filing because Berkshire had unsecured debt in the mortgage unit, according to the people. Detroit-based Ally turned down the Berkshire proposal after deciding that a bankruptcy filing and sale better protected the company from future liabilities, the people said.
To contact the reporter on this story: Steven Church in Wilmington, Delaware, at firstname.lastname@example.org