By Joseph Checkler
The author of Residential Capital LLC's mammoth examiner's
report is asking to be relieved from his duties.
Retired U.S. Bankruptcy Court Judge Arthur J. Gonzalez, whose
2,200-plus page independent report concluded that ResCap parent
Ally Financial Inc. didn't set its subsidiary up for failure as
some creditors charged, said in a Friday filing that his work is
done.
The lingering deadline for Mr. Gonzalez's report was considered
a major factor in Ally's June settlement with creditors, which
calls for the company to pay $2.1 billion to settle those
creditors' claims. Judge Martin Glenn allowed Mr. Gonzalez's
report--one of the largest in the history of bankruptcy--to be
filed with the court confidentially at first as the sides finalized
details on their settlement.
The report cost ResCap's estate more than $80 million in fees
paid to professionals, and said despite not setting up ResCap for
failure, Ally could have been on the hook for as much as $3 billion
in creditor claims. A $750 million offer to creditors made at the
beginning of ResCap's bankruptcy case would have been too low, Mr.
Gonzalez said, a conclusion shared by the creditors who fought for
more.
In his Friday filing, Mr. Gonzalez said that aside from being
relieved, he wants the work done by himself and his hired
professionals to be kept confidential and for them to be immune
from future investigations regarding the report. He also said that
to avoid "wasteful collateral litigation," he and his professionals
shouldn't be considered liable for anything related to ResCap's
Chapter 11.
Such requests by examiners are common in bankruptcy cases, and
judges usually grant them with few questions. A hearing on Mr.
Gonzalez's request is set for Sept. 24.
Judge Glenn last week cleared creditors to vote on ResCap's
Chapter 11 plan, which would pay most unsecured creditors about 36
cents on the dollar in the company's liquidation.
The plan is based largely on the $2.1 billion settlement between
government-controlled parent Ally and the company's official
committee of unsecured creditors. The deal leaves Ally off the hook
for further liabilities related to those creditors. After the sales
of two huge chunks of assets earlier this year, that settlement
loomed as one of the largest issues in ResCap's 14-month-old
bankruptcy. The other was Mr. Gonzalez's report. The creditors had
said at one point that Ally may be on the hook for all $25 billion
in claims in ResCap's bankruptcy, though Mr. Gonzalez didn't go
nearly that far in his assessment.
If the plan is ultimately ratified by creditors and approved by
Judge Glenn at a hearing tentatively set for November, creditors
will receive different amounts of recovery based on which
ResCap-related entity owes them money, but most unsecured creditors
will receive the 36.3 cents on the dollar.
ResCap, once one of the country's largest mortgage servicers and
mortgage lenders, filed for Chapter 11 protection in May 2012 as
litigation over soured mortgage securities mounted and bond
payments loomed. The move was intended to help Ally, which isn't
part of the bankruptcy, to sever itself from those issues so it can
focus on repaying the bailout it received during the financial
crisis.
During its bankruptcy, 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
ResCap estate has also racked up nearly $400 million in fees for
the professionals working on its case.
(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@wsj.com
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