Residential Capital LLC ( fka RDCC)

[Enterprising Investor]

ResCap Creditors Target Cash From Ally Asset Sales (11/26/12)

By SHARON TERLEP And ANDREW R. JOHNSON

A group of creditors owed billions of dollars by Ally Financial Inc.'s mortgage subsidiary wants cash from a string of asset sales before any goes to the U.S. government, which funded a $17.2 billion bailout of the firm.

The creditors, of mortgage firm Residential Capital LLC, are eyeing more than $9 billion Ally plans to collect from sales of its international operations, including last week's announced $4.2 billion deal with General Motors Co. Ally has agreed to sell those assets with the goal of repaying the Treasury, which owns 74% of Ally.

In a letter sent Monday to Ally's board, the creditors question transfers made in 2009 from Residential Capital to Ally, according to people who have reviewed the letter. Residential Capital, known as ResCap, filed for bankruptcy protection earlier this year.

The creditors said Ally stripped ResCap of most of its value when it transferred Ally Bank, a depository unit valued at $10 billion, to the parent company. They said ResCap creditors should be repaid before others receive proceeds from Ally.

Ally, now primarily an auto lender, has argued that it is insulated from ResCap's liabilities because of the companies' long-distinct ownership structures.

"The letter from creditors is a predictable tactic," Gina Proia, a spokeswoman for Ally, said in a statement on Monday. "We strongly disagree with the allegations in the letter and believe the claims are wholly without merit."

A Treasury spokesman referred to an earlier statement from Timothy Massad, the Treasury's assistant secretary for financial stability, that ResCap "is a separate and distinct company from Ally that has its own board of directors and creditors."

The letter is from a committee representing ResCap unsecured creditors that includes Allstate Corp.,American International Group Inc. and Wilmington Trust Corp. A representative for the creditors' committee didn't respond to a request for comment.

ResCap's bankruptcy was intended to help Ally, which wasn't part of the filing, by severing Ally from ResCap's litigation over soured mortgage securities and other liabilities that had been a drag on Ally's financial results.

ResCap creditors have made this argument questioning transfers before. The Ally Bank transaction and others are being investigated by Arthur J. Gonzalez, a court-appointed examiner.

He was appointed at the request of creditors, including Warren Buffett's Berkshire Hathaway Inc., one of ResCap's largest bondholders, which has argued that past dealings between the two entities should be reviewed to determine whether ResCap was paid fair value.

Mr. Gonzalez expects to deliver his findings in early April, according to a filing made by his attorneys in U.S. Bankruptcy Court on Monday.

Ally, formerly called General Motors Acceptance Corp., is the former finance arm of General Motors. The auto maker sold control of the lending company in 2006 to shield it from the auto maker's declining fortunes. Shortly after, the housing crisis drove ResCap, once a bright spot for the lender, deep into the red. The government bailed out Ally in part to ensure it could continue to provide auto loans amid the Obama administration's rescue of the U.S. auto industry.

Ally Chief Executive Officer Michael Carpenter has said the company plans to focus its efforts on its core U.S. auto-lending and online-banking businesses. As part of its plan to slim down, Ally has also announced plans to sell international operations, including an agreement reached last week to sell to GM assets in Europe and Latin America as well as its 40% stake in a Chinese joint venture.

Ally aims to put those proceeds toward repaying the U.S. government. The company has repaid about $5.8 billion.

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