Residential Capital LLC ( fka RDCC)

[Enterprising Investor]

ResCap Seeks Change to Ensure Quicker 'Legacy' Loan Sale (10/11/12)

Residential Capital LLC said in court papers it is changing the terms of its $1.45 billion bankruptcy loan to allow it to sell its "legacy" loan portfolio before unloading its mortgage-servicing portfolio, a move that would allow Berkshire Hathaway Inc. (BRKA, BRKB) or a competing bidder to close on a deal for the legacy loans more quickly.

The filing, made Wednesday with U.S. Bankruptcy Court in Manhattan, comes just two weeks before scheduled auctions on the loan portfolios, the proceeds of which will serve as the linchpin to ResCap's exit from bankruptcy. Berkshire is the lead bidder for the legacy loans, which are mortgages that ResCap is holding for sale. Fortress Investment Group (FIG) subsidiary Nationstar Mortgage Holdings Inc. (NSM) is the lead bidder for the mortgages.

ResCap needs court approval for the changes quickly and asked for an expedited hearing on the matter. As part of the request, ResCap said it will pay $2.1 million more in fees to the bankruptcy lender group led by Barclays PLC (BCS, BARC.LN).

The approvals and licenses needed to close the deal on the mortgage portfolio take much longer than the process required to close on the legacy loans, ResCap said. Being able to close the legacy sale will allow it to pay down both the Barclays bankruptcy loan and a separate loan made by government-controlled parent Ally Financial Inc.

ResCap filed for Chapter 11 protection May 14 as bond-related payments loomed and litigation over soured mortgage-backed securities mounted. The move is intended to help Ally, which isn't part of the bankruptcy, sever itself from an estimated $400 million to $1.25 billion in liabilities related to ResCap's troubles.

ResCap earlier this year agreed to sales of its two main loan portfolios with Berkshire and Nationstar as the lead bidders, after initially agreeing to sales of the portfolios to Nationstar and Ally. The sales, which are subject to higher bids, could generate more than $4 billion for ResCap's estate: Berkshire's bid for the legacy loans is $1.7 billion, while Nationstar's bid for the existing mortgage platform is $2.5 billion.

Other bidders have already begun to emerge. Last week, the general counsel of Ocwen Financial Corp. (OCN) told Dow Jones that his company is interested in buying assets from ResCap.

(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 [e-mail]. Follow him on Twitter at @JoeCheckler.