Residential Capital LLC ( fka RDCC)

[Enterprising Investor]

BANKRUPTCY WEEK AHEAD: ResCap Assets Head to Auction (10/19/12)

By JACQUELINE PALANK

Residential Capital LLC will put its loan-portfolio and mortgage-servicing assets on the block for a bankruptcy court-supervised auction in the upcoming week.

The mortgage servicer has leading bids lined up from Warren Buffett 's Berkshire Hathaway Inc. (BRKA, BRKB) and Nationstar Mortgage Holdings Inc. (NSM) for the assets, which will be sold separately.

Nationstar bid $2.5 billion for the mortgage-servicing platform, slated for a Tuesday auction, while Berkshire on Wednesday will start off the bidding for ResCap's legacy loan portfolio at $1.7 billion.

However, ResCap's attorney recently told a bankruptcy judge there is a chance that the auctions may carry over to Thursday. The winning bids would be subject to court approval at a later hearing, which is scheduled for November.

At stake in the auctions isn't only creditors' ability to be paid but also a $7 million bonus plan for 17 of ResCap's top executives and managers. A bankruptcy judge had denied the original plan out of concern it represented an illegal insider-retention plan rather than a legal incentive plan with tough and meaningful benchmarks.

To pass the judge's muster, ResCap made sure the incentives are payable only in the event the recipients hit clear performance targets.

Certain top executives aren't eligible for bonuses, including Chief Executive Thomas Marano , who faces restrictions under the Troubled Asset Relief Program, the U.S. government's bank-rescue plan launched during the financial crisis. ResCap's parent company, the government-controlled Ally Financial Inc., received more than $17 billion in rescue aid during the financial crisis; it has paid the government $5.7 billion since then.

Speaking of bonuses, a bankruptcy judge on Tuesday is scheduled to review LightSquared's bonus plan for four company insiders.

The plan, which would set aside nearly $6 million in cash bonuses for such insiders as the company's interim chief executive, has so far drawn the ire of LightSquared's lenders and a federal bankruptcy watchdog. These critics have said the plan is an illegal retention plan that tries to mask easily met goals as hard-to-reach benchmarks.

In its request, LightSquared acknowledged using the bonuses to motivate its "irreplaceable employees" to stick with it but also said the payments are tied to cash-preservation goals as well as a resolution of the regulatory issues that have so far thwarted the company's bid to create a wireless broadband network.

LightSquared, which is controlled by hedge-fund manager Philip Falcone , sought Chapter 11 protection in May after federal regulators blocked it from deploying its network. The company recently said it found a way to address regulators' concerns that its network interfered with global positioning systems.

Failed solar company Solyndra LLC will return to court Monday in the continuation of a battle over its creditor-payment plan.

On Wednesday, Solyndra and the U.S. Department of Energy squared off over the latter's objections to the plan and its treatment of the department's $528 million claim.

Solyndra's Chapter 11 plan, if approved by the Wilmington, Del., bankruptcy court, would divide the cash raised by the sale of Solyndra's assets among the company's creditors. But there isn't enough to pay everyone, including the Energy Department.

Still, Solyndra said a recent $1.5 billion antitrust suit it filed could go a long way to boosting creditors' recoveries, including the department's.

Solyndra insists its plan is the only viable option. Its chief restructuring officer, R. Todd Neilson, warned the court Wednesday that failure to win confirmation would deprive the defunct company of the cash it needs to pay its creditors and shelve a settlement that would give $3.5 million to some 800 fired workers.

(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection. Go to http://dbr.dowjones.com.)

--Joseph Checkler and Peg Brickley contributed to this article.

Write to Jacqueline Palank at [e-mail]

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