Residential Capital LLC ( fka RDCC)

[Enterprising Investor]

Junior Bondholders Pull Support for Residential Capital's Plan (9/27/12)

By Andrew R. Johnson

Junior bondholders of Residential Capital LLC, the bankrupt mortgage lender of government-owned Ally Financial Inc., have withdrawn their support for ResCap's reorganization plan.

Ally spokeswoman Gina Proia wrote in an email Thursday that the bondholders terminated an agreement that Ally had announced in May under which the third-lien bondholders would support ResCap's plan.

"The bondholders' action enables the bondholders to trade their bonds without waiving the right to accrued and unpaid interest during this process and also frees Ally from subordinating its recovery by $350 million," Proia wrote. "This action does not change Ally's view of the bankruptcy process and the process continues to move forward."

Furthermore, Ally said its agreement with ResCap, under which the parent would receive legal releases from mortgage litigation in exchange for a payment to ResCap, is not affected by the bondholders' action, she said. It also does not affect a separate agreement ResCap has with investors in its mortgage-backed securities.

Bloomberg News first reported the bondholders' action Wednesday night.

Residential Capital filed for Chapter 11 bankruptcy in May as bond-related payments loomed and litigation over soured mortgage securities mounted. Ally, which is not part of the bankruptcy, hopes to sever itself from those issues so it can work toward repaying a government bailout that stands at about $12 billion.

At the time of the filing, Ally said ResCap had obtained support for its prearranged restructuring from an ad hock steering committee representing ResCap's junior secured notes and some other noteholders.

Ally, the former in-house financing arm for General Motors Co. (GM), remains 74% owned by the U.S. government after receiving a rescue package that topped $17 billion during the financial crisis.

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http://professional.wsj.com/article/TPDJON000020120927e89r00047.html