Stephanie Gleason
A bankruptcy judge Wednesday approved a $2 million success bonus
for an adviser that's guided Residential Capital LLC, the mortgage
lender controlled by government-owned finance company Ally
Financial Inc., through its Chapter 11 restructuring.
Judge Martin Glenn of the U.S. Bankruptcy Court in Manhattan
said he was "very comfortable in these circumstances concluding
that" ResCap and its board of directors had exercised appropriate
business judgement in determining the bonus for Chief Restructuring
Officer Lewis Kruger.
The bonus "is reasonable and perhaps below market, if one can
determine a market for such services," Judge Glenn said
Wednesday.
The payment received no objections and was negotiated with the
official committee of unsecured creditors, which stated its support
in a letter filed Tuesday.
ResCap hired Mr. Kruger, a bankruptcy lawyer at Stroock &
Stroock & Lavan, in February to serve as its CRO.
The hiring of Mr. Kruger came at a time when ResCap's prospects
of a successful restructuring appeared grim, as creditors argued
that the mortgage lender's board couldn't be trusted to
aggressively negotiate a settlement with Ally.
In earlier court papers, ResCap said Mr. Kruger's status as an
"independent fiduciary" with no ties to Ally was key to its ability
to negotiate a $2.1 billion settlement with Ally and ResCap's
subsequent Chapter 11 plan.
In addition to overseeing ResCap's restructuring efforts, Mr.
Kruger eventually took on many of the roles of chief executive, the
company said. Former Bear Stearns executive Thomas Marano, who led
ResCap for five years, resigned as the CEO in May.
The bonus is on top of Mr. Kruger's $895 hourly fee. He'll
receive the $2 million on the effective date of ResCap's Chapter 11
plan, meaning he'll only receive the payment if the plan he helped
negotiate is ultimately confirmed by the court and put into
action.
ResCap's Chapter 11 plan is based on the $2.1 billion deal with
Ally, which agreed to make the payment to avoid litigation over
ResCap's mortgage business. Judge Glenn is slated to consider the
plan at a Nov. 19 hearing.
Once the country's fifth-largest mortgage servicer and
10th-largest mortgage lender, ResCap filed for Chapter 11
protection in May 2012 as litigation over soured mortgage
securities mounted and bond payments loomed.
The company sold its main assets--a mortgage-servicing platform
to Ocwen Financial Corp. (OCN) and Walter Investment Management
Corp. (WAC) and a portfolio of loans to Berkshire Hathaway Inc.
(BRKA)--for more than $4 billion.
The ResCap bankruptcy filing was intended to help Ally sever
itself from the issues surrounding its subsidiary so that it could
focus on repaying the bailout it received from the U.S. Treasury
during the financial crisis.
-Jacqueline Palank contributed to this article.
(Dow Jones Daily Bankruptcy Review covers news about distressed
companies and those under bankruptcy protection. Go to
http://dbr.dowjones.com)
Write to Stephanie Gleason at stephanie.gleason@wsj.com
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