By Andrew R. Johnson
Ally Financial Inc. has fired back at creditors of its mortgage
subsidiary, Residential Capital, who argue they should receive
proceeds from a string of Ally asset sales before it repays the
U.S. government's crisis-era bailout.
Ally, the former in-house financing arm for General Motors Co.
(GM), has been selling international businesses in an effort to
slim down and repay a $17.2 billion government rescue.
But creditors of ResCap, Ally's subprime mortgage lender that
filed for Chapter 11 bankruptcy in May, claim they have a right to
the proceeds, alleging Ally stripped ResCap of valuable assets,
including an ownership stake in Ally's depository institution,
before its filing.
Ally isn't part of the bankruptcy and has maintained it and
ResCap were separate companies with their own management and
boards.
In a letter dated Tuesday and sent to an attorney for the
committee representing unsecured creditors in ResCap's bankruptcy,
Ally argued that claims it raided ResCap of assets lack merit and
its recent asset sales aren't subject to ResCap's bankruptcy
proceedings.
"These transactions are within the province of [Ally], its Board
of Directors, the United States Department of the Treasury, the
Board of Governors of the Federal Reserve System, and the Federal
Deposit Insurance Corporation," Richard Cieri, an attorney with
Kirkland & Ellis LLP who represents Ally, wrote in the letter,
a copy of which was provided to Dow Jones Newswires by a person
involved in the case.
In addition to Kenneth Eckstein, an attorney representing the
unsecured creditors committee, the letter was also sent to the U.S.
Treasury Department, representatives of the Federal Reserve Board,
the Federal Deposit Insurance Corp. and others.
Mr. Eckstein didn't immediately respond to requests for comment
late Wednesday. A spokesman for the U.S. Treasury Department didn't
have an immediate comment when reached.
A spokeswoman for Ally declined to comment on the letter.
Ally last month struck a deal to sell operations in Europe and
Latin America as well its stake in a Chinese joint venture to GM
for $4.2 billion. Its also reached agreements to sell businesses in
Canada and Mexico, with all deals expected to bring in $9.2 billion
in proceeds, which Ally has said it plans to use to help repay its
bailout.
A key issue for creditors has been a transaction involving Ally
Bank.
They argue Ally stripped ResCap of most of its value when it
transferred Ally Bank to the parent company from the mortgage
company unit in a transaction completed in 2009. The transaction is
among the deals that Arthur J. Gonzalez, the court-appointed
examiner in ResCap's bankruptcy, is investigating as part of his
review, which is expected to be completed in April.
Ally has proposed paying $750 million to ResCap as part of a
settlement that would alleviate Ally of responsibility for ResCap's
legal liabilities, and some creditors have also argued that amount
is inadequate.
Last week, attorneys for ResCap filed a motion requesting the
U.S. Bankruptcy Court appoint a mediator to help it, creditors and
other stakeholders move forward on negotiations over key matters in
the case, citing a reluctance by some creditors to work out an
agreement before the examiner's review is completed.
Write to Andrew R. Johnson at andrew.r.johnson@dowjones.com