Residential Capital LLC wants court approval to hire a chief
restructuring officer as creditors try to block a settlement with
parent Ally Financial Inc.
The company, once one of country's largest subprime mortgage
lenders, is seeking to employ restructuring attorney Lewis Kruger
to deal with creditor demands that could prevent ResCap from
gaining support for a reorganization plan it aims to file by the
end of the month, the company's attorneys said in a filing with the
U.S. Bankruptcy Court on Monday.
"The debtors believe that a business level leader with
restructuring experience is necessary to resolve the significant
disputes with the debtors' major stakeholders and remove barriers
to the filing of a Chapter 11 plan," the filing said.
Squabbling between creditors--including bond holders and
insurers--and Ally has intensified in recent weeks as an
exclusivity period for ResCap to file a reorganization plan ends
Feb. 28.
The creditors take aim at a proposed settlement Ally struck last
year under which the government-owned motor-vehicle lender formerly
known as GMAC would pay $750 million to ResCap's estate in exchange
for a release from liability of third-party claims.
But the proposed amount is a drop in the bucket compared with
Ally's true financial liabilities, argue the creditors, who alleged
Ally stripped ResCap of its most valuable asset--an ownership stake
in Ally's depository unit, Ally Bank--prior to ResCap's
bankruptcy.
Ally executives objected saying ResCap was operated as an
independent company with its own board of directors.
"We are extremely confident that such claims are completely
without merit," Ally Chief Executive Officer Michael Carpenter said
during an earnings conference call last week. Ally won't "be held
to a ransom payment" by ResCap creditors and will "go the
litigation route" if necessary, he added.
Mr. Kruger will help lead the company "through the complex
restructuring issues remaining in the debtors' cases," ResCap's
attorneys said in their filing.
ResCap's board unanimously voted Feb. 7 to appoint Mr. Kruger as
chief restructuring officer following an "extensive" interview
process, according to the filing.
Mr. Kruger is currently a partner and joint chairman of the
financial restructuring group at Stroock & Stroock & Lavan
LLP. If his appointment is approved by the bankruptcy court, Mr.
Kruger will withdraw from those positions, the filing said.
His duties for ResCap will include participating in plan
negotiations as well as settlement talks with Ally, working with
creditors to resolve disputes and assisting ResCap's
management.
Because some ResCap creditors are "critical of the debtors'
historical relationship with Ally Financial Inc.," the company
believes "it is important to appoint an independent" chief
restructuring officer to "direct these plan discussions and lead
the debtors in the ongoing mediation."
ResCap is proposing paying Mr. Kruger an hourly rate of $895
plus monthly reimbursements for transportation, food, lodging and
other costs. He also will be eligible for a fee upon
completion.
ResCap filed for Chapter 11 bankruptcy in May as bond payments
loomed and litigation over soured mortgage securities mounted. The
move was intended to help Ally, the former in-house financing arm
for General Motors Co. (GM), eliminate its exposure to the mortgage
business so it can focus on its core motor-vehicle-lending
operations and repaying its government bailout.
Ally, which is not part of the bankruptcy, is 74% owned by the
U.S. government after receiving $17.2 billion during the financial
crisis. The company last year struck several deals to sell
international operations that could generate $9.2 billion in
proceeds, which it would use to repay its bailout.
Mr. Carpenter said last week Ally is currently working on a plan
to repay a part of Treasury's investment in the company soon.
Write to Andrew R. Johnson at andrew.r.johnson@dowjones.com
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