Residential Capital LLC ( fka RDCC)

[Enterprising Investor]

ResCap Wins Exclusivity Extension (3/06/13)

A judge on Tuesday gave Residential Capital LLC 60 days from now to file a restructuring plan without having to worry about rival proposals, as the company seeks to settle the complex issues surrounding its bankruptcy case.

Judge Martin Glenn of the U.S. Bankruptcy Court in Manhattan approved a negotiated compromise between the official committee of unsecured creditors and ResCap to extend the control by 60 days instead of the 90 days ResCap was originally asking for. Initially, the judge was going to allow only a 14-day extension so an ad-hoc bondholder group's objection to be argued at a hearing later this month. But after a break, ResCap removed a provision that would have barred the company from filing a plan not supported by the creditors committee.
That satisfied the bondholder group. Judge Glenn said it would be a "miracle" if a plan was filed within the 60 days anyway, something not disputed by ResCap or the creditors.

ResCap's case has hit a hitch over settlement negotiations between parent Ally Financial Inc . and creditors. When the case began last spring, Ally had proposed to pay $750 million to ResCap's estate as long as it was released from liabilities. Creditors have balked at that number, throwing the case into perpetual uncertainty.

Morrison & Foerster LLP 's Lorenzo Marinuzzi, a ResCap lawyer, suggested in court Tuesday that a settlement "north of $750 million" could help move the case forward, although it would probably remain "hotly contested" by creditors. He also said that Ally probably couldn't write a check big enough to satisfy everyone in the case.

For his part, Judge Glenn said he's still concerned with the lack of progress on a restructuring plan.

"In some respects, there has been good progress in the case," Judge Glenn said at Tuesday's hearing, referring specifically to the more than $4 billion generated by ResCap in selling its assets, including its mortgage-servicing platform, to Ocwen Financial Corp . and Walter Investment Management Corp ., and a portfolio of loans up for sale to Berkshire Hathaway Inc . The judge added that, "Where there clearly has been less progress has been in the plan process."

To address the concerns over the restructuring negotiations, Judge Glenn on Tuesday approved ResCap's appointment of bankruptcy lawyer Lewis Kruger as its chief restructuring officer, a move cheered by most parties in the case. Mr. Kruger, of Stroock & Stroock & Lavan LLP , is charged with the difficult task of helping facilitate a deal among ResCap, its creditors and government-owned ResCap parent Ally. ResCap said it will come before the judge later with a proposed "success fee" for Mr. Kruger.

Also working to broker a compromise is Judge James Peck, the bankruptcy judge appointed as a mediator in the case whose term Judge Glenn said he would extend.

"I view the appointment of Mr. Kruger as the CRO as a very important step in what I still hope will be the development of a consensual plan," Judge Glenn said.

One of the other main issues ResCap faces is over a settlement the company reached last year to allow an $8.7 billion claim by the owners of 392 mortgage-backed securities trusts. That settlement, related to 1.6 million mortgages, is being fought by bond insurers and other creditors who say the deal is meant to shield Ally from liabilities. A trial on that matter is tentatively scheduled for next month, though it has been pushed back several times.

Yet another wrinkle involves an upcoming report due from independent examiner Arthur J. Gonzalez, the former bankruptcy judge whom Judge Glenn appointed to look into ResCap's relationship and dealings with Ally. A lawyer for ResCap's creditors committee said the major question in the case is whether deals can get done before Judge Gonzalez's report, which is expected out in May.

All these factors and factions have made ResCap's case quite expensive.

"The costs of this case are fairly extraordinary, frankly," Judge Glenn said Tuesday. Through the end of January, ResCap's estate has paid $234.4 million to professionals in the case, according to court filings.

ResCap filed for Chapter 11 bankruptcy last May as bond payments loomed and litigation over soured mortgage securities mounted. The move was intended to help Ally, the former in-house financing arm for General Motors Co ., eliminate its exposure to the mortgage business so it can focus on its core motor-vehicle-lending operations and repaying its government bailout.

Ally, which is not part of the bankruptcy, is nearly three-quarters owned by the U.S. government after receiving $17.2 billion during the financial crisis. The company last year struck several deals to sell international operations that could generate $9.2 billion in proceeds, which it would use to repay its bailout.

Write to Joseph Checkler at [e-mail].

http://blogs.wsj.com/bankruptcy/2013/03/06/the-daily-docket-rescap-wins-exclusivity-extension/?KEYWORDS=residential+capital