By Joseph Checkler
NEW YORK--Residential Capital LLC on Wednesday got more time to
file a reorganization plan clear from the threat of rival
proposals, two weeks before a hearing on a key settlement with
parent Ally Financial Inc.
Judge Martin Glenn of U.S. Bankruptcy Court in Manhattan gave
ResCap until Aug. 21 to file a restructuring plan and until Oct. 21
to solicit votes on that proposal, a procedural move made necessary
by the Bankruptcy Code's limits on how long companies can stay in
Chapter 11.
"The debtors have made tremendous progress," said Morrison &
Foerster LLP's Lorenzo Marinuzzi, a lawyer for ResCap. ResCap's
eventual Chapter 11 exit figures to revolve around a $2.1 billion
payment to ResCap and creditors from Ally, a settlement reached
late last month that ended a protracted fight between
government-controlled Ally and those creditors.
Judge Glenn will consider approving that settlement at a hearing
set for June 26. That same day, an independent examiner's report
into Ally's relationship with ResCap both before and after the
mortgage subsidiary's 2012 bankruptcy filing is expected to be
released publicly. That report, by former bankruptcy judge Arthur
J. Gonzalez, cost ResCap's estate about $80 million in professional
fees and has thus far only been seen by Mr. Gonzalez's team and
Judge Glenn. Both ResCap and creditors have said that the
uncertainty surrounding that report's content helped them reach
their settlement, as did mediation by another U.S. bankruptcy
judge, James Peck.
As part of the $2.1 billion settlement, which was $1.35 billion
more than Ally said it would pay when ResCap entered Chapter 11
last spring, creditors agreed not to pursue litigation against Ally
that threatened to upend both the bankruptcy case and Ally's
balance sheet.
Also at Wednesday's hearing, a lawyer for ResCap creditor
Berkshire Hathaway Inc. (BRKA, BRKB) fought ResCap in its bid to
pay down $1.1 billion in debt to Ally and another $800 million to
bondholders. The lawyer said the matter should be at least pushed
back until the June 26 hearing, considering Judge Glenn hasn't even
approved the settlement yet. He said he wanted to question a ResCap
witness about the proposal, and the judge said he could later at
Wednesday's hearing. Judge Glenn seemed unlikely to rule on that
matter until later.
ResCap, once the fifth-largest mortgage servicer in the country,
filed for Chapter 11 bankruptcy on May 14, 2012, as litigation over
soured mortgage securities mounted and bond payments loomed. Last
year, ResCap struck deals to sell mortgage-servicing platforms and
loan portfolios as a part of bankruptcy auctions that generated
$4.5 billion in proceeds.
The mortgage firm's bankruptcy filing was intended to help Ally,
which is 74% owned by U.S. taxpayers and not part of the
bankruptcy, make a clean break from ResCap so it can move forward
with repaying the bailout it received through the Troubled Asset
Relief Program.
(Dow Jones Daily Bankruptcy Review covers news about distressed
companies and those under bankruptcy protection. Go to
http://dbr.dowjones.com)
Write to Joseph Checkler at joseph.checkler@dowjones.com. Follow
him on Twitter at @JoeCheckler
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