By Joseph Checkler
Residential Capital LLC said more than 95% of voting creditors
accepted its liquidation proposal, as the company prepares to ask a
judge to approve that plan.
In court Thursday, a lawyer for ResCap said that of the 1,432
votes cast, only 64 voted no to the proposal.
Morrison & Foerster LLP's Gary S. Lee, ResCap's lead lawyer,
told Judge Martin Glenn of U.S. Bankruptcy Court in Manhattan that
out of nearly 150 classes of creditors voting on the liquidation
plan, one small class rejected it.
The hearing presaged a multiday trial set for next week over
whether Judge Glenn should approve the plan, but part of the
process will include Phase II of a trial between ResCap and hedge
funds holding its junior unsecured notes.
Judge Glenn said he expects to rule Friday on Phase I of that
trial, a fight over whether the hedge funds are entitled to
interest on their notes accrued after ResCap filed for bankruptcy
and whether their notes "are oversecured," which would entitle them
to more money.
Judge Glenn has set aside six days on his calendar for hearings
to consider the proposal. The plan is based largely on a settlement
among the company, its creditors and government-controlled parent
Ally Financial Inc. that calls for Ally to pay $2.1 billion to
settle creditor claims but absolves it from future liabilities in
the case. Mr. Lee said in court Thursday that the company continues
to settle objections to its proposal.
ResCap, once one of the country's largest mortgage servicers and
mortgage lenders, filed for Chapter 11 protection in May 2012 as
litigation over soured mortgage securities mounted and bond
payments loomed. The move was intended to help Ally, which isn't
part of the bankruptcy, sever itself from those issues so it could
focus on repaying the bailout it received during the financial
crisis.
During its bankruptcy, ResCap struck deals to sell
mortgage-servicing platforms and loan portfolios as a part of
bankruptcy auctions that generated $4.5 billion in proceeds. The
ResCap estate has racked up more than $430 million in fees for the
professionals working on its case.
When ResCap first filed for Chapter 11, the Ally payment was set
at $750 million, but it became clear very early that creditors
wanted more. A court-ordered examiner's report by former U.S.
Bankruptcy Court Judge Arthur J. Gonzalez concluded that while Ally
didn't set up ResCap for failure, as some creditors charged, the
$750 million settlement would have been too low.
If the plan is approved by Judge Glenn, creditors will receive
different amounts of recovery based on which ResCap-related entity
owes them money, but most unsecured creditors will receive the 36.3
cents on the dollar.
(Dow Jones Daily Bankruptcy Review covers news about distressed
companies and those under bankruptcy protection. Go to
http://dbr.dowjones.com)
Write to Joseph Checkler at joseph.checkler@wsj.com
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