BRK/A Sells ResCap Bonds Days After Seeking Probe (6/08/12)
By Steven Church on June 08, 2012
Berkshire Hathaway Inc. (BRK/A) (A), the holding company run by the billionaire Warren Buffett, sold its unsecured Residential Capital LLC bonds, two days after calling for a probe of the mortgage lender’s pre-bankruptcy deals.
Ted Weschler, a Berkshire investment manager, disclosed the sale yesterday in a court filing. Berkshire on June 4, asked the judge overseeing ResCap’s bankruptcy in Manhattan to approve an examiner to investigate deals made before the company sought court protection, including transactions with its parent, Ally Financial Inc. (ALLY) (ALLY)
Berkshire, based in Omaha, Nebraska, held more than $500 million of ResCap’s unsecured bonds before the sale. The company sold them on June 5 and June 6, Weschler said, without disclosing prices. Berkshire still holds more than $900 million of ResCap’s junior secured bonds, according to the filing.
Buffett didn’t immediately respond to e-mailed questions sent to an assistant.
An investigation of ResCap’s deals “must be conducted by an impartial examiner appointed by the court,” Berkshire said in court papers.
ResCap, a real estate financing firm based in Minneapolis, filed bankruptcy May 14 with plans to sell most of its assets to Fortress Investment Group LLC. (FIG) (FIG)
Legal Claims
Ally, a Detroit-based bank that specializes in car loans, supported the bankruptcy filing as a way to resolve legal claims related to mortgage-backed securities. Ally is 74 percent-owned by the U.S. Treasury after receiving a bailout.
Prices for three of ResCap’s unsecured bonds rose on June 5 after Berkshire asked for an investigation, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
Yesterday and today, those same bonds fell. The 6.5 percent bonds that matured on June 1 dropped more than 7 percent. The 6.5 percent bonds maturing next year fell 16 percent. And the 6.875 percent bonds fell almost 12 percent. All were selling for 17.6 cents on the dollar, according to Trace.
U.S. Bankruptcy Judge Martin Glenn in Manhattan hasn’t ruled on Berkshire’s request. Glenn gave unsecured creditors permission to investigate deals that the bankrupt mortgage company made to help Ally avoid billions of dollars of potential legal liability.
Approval’s Effect
His approval gives company lawyers permission to interview witnesses under oath and subpoena documents.
The committee’s request to look into the deals is routine in large corporate bankruptcies. Berkshire’s is rarer. Results of such investigations are usually given more weight by judges because they are considered independent.
ResCap filed for bankruptcy May 14 with plans to sell most of its assets to Fortress Investment Group LLC. Ally, supported the bankruptcy filing as a way to resolve legal claims related to mortgage-backed securities. Ally is 74 percent owned by the U.S. Treasury after receiving a bailout.
ResCap has proposed dispensing with potential lawsuits against Ally as part of the sale of mortgage loans and other financial assets to its parent company.
Ally agreed to pay ResCap $750 million to settle any claims against the parent, buy as much as $1.6 billion of securities if others don’t, and provide $150 million to help finance ResCap’s operations during bankruptcy, according to a company statement.
The case is In re Residential Capital LLC, 12-12020, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
To contact the reporter on this story: Steven Church in Wilmington, Delaware, at schurch3@bloomberg.net.
To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net.
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