By Joseph Checkler
NEW YORK--Residential Capital LLC on Tuesday sparred with
creditors over a proposed $8.7 billion settlement with mortgage
securities investors, with some creditors arguing the company has
proposed too quick a timetable for them to analyze the offer.
Morrison & Foerster LLP's Anthony Princi, a ResCap lawyer,
said while he understood that creditors and the trusts representing
the mortgage securities investors wanted "comfort" in the case, it
shouldn't hinder the bankruptcy case.
"They're only worried about their parochial interest," Mr.
Princi said. "The case has to proceed."
The timetable proposed by ResCap calls for a hearing on the
settlement this fall, around the same time as the proposed auctions
of two ResCap loan portfolios that serve as the linchpin of the
company's bankruptcy proposal.
The company's unsecured creditors and a group of the RMBS
trustees opposed the timetable, which includes a mid-October
hearing for Judge Martin Glenn of U.S. Bankruptcy Court in
Manhattan to approve the deal. The creditors said that if deals
with the mortgage investors aren't reached, or if Judge Glenn
rejects the settlement, the sale of the two businesses could be
hindered.
Potential buyers, the creditors argued, could be dissuaded from
bidding if the issues aren't resolved. Plus, the trustees
representing the mortgage securities investors intend on objecting
to the sales of those businesses if their concerns aren't met.
Judge Glenn encouraged Mr. Princi to meet with all objecting
parties' lawyers at Morrison & Foerster's office and come up
with a compromised timetable by next week.
Mr. Princi said at a hearing earlier this month that 337 of the
392 trusts that represent those mortgage-security investors had
already directed their trustees to accept the agreements. That was
up from 290 when the company filed for Chapter 11 in May.
ResCap, a subsidiary of government-controlled Ally Financial
Inc., touted the settlement as a key component of its bankruptcy
filing. When it agreed to grant the $8.7 billion claim on mortgage
securities issued between 2004 and 2008, 17 large institutional
investors said they'd support the company's reorganization plan,
the company said.
ResCap's bankruptcy is based on the sales of its
mortgage-servicing portfolio and a separate "legacy" portfolio of
mortgages that were being held for sale. Last month, Berkshire
Hathaway Inc.'s (BRKA) $1.7 billion bid made it the lead bidder in
the auction of the legacy portfolio, with Fortress Investment Group
(FIG) subsidiary Nationstar Mortgage Holdings Inc.'s (NSM) $2.5
billion bid surpassing Berkshire to become the lead bidder on the
mortgage-servicing portfolio. Both sales are subject to higher bids
at auctions this fall.
Also at Tuesday's hearing, Judge Glenn said he met in his
chambers Tuesday morning with Arthur J. Gonzalez, the former
bankruptcy judge serving as an independent examiner in the case.
Judge Glenn said Mr. Gonzalez expects his investigation into Ally's
pre-bankruptcy dealings with ResCap to last about six months.
Judge Glenn last month agreed to appoint an examiner after
Warren Buffett's Berkshire demanded one.
Looming bond payments and mounting litigation over soured
mortgage securities prompted ResCap to file for Chapter 11
bankruptcy on May 14 in a move intended to help Ally sever itself
from legal exposure.
(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@dowjones.com. Follow
him on Twitter at @JoeCheckler.
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