UPDATE: Treasury Would Support Bankruptcy Of Ally's ResCap Unit - Official
May 07 2012 - 5:01PM
Dow Jones News
The U.S. Treasury Department has agreed to support a bankruptcy
filing for the struggling home-loan unit of government-owned lender
Ally Financial Inc., if the company chooses to take that route, an
official said Monday.
A bankruptcy filing for Ally's subsidiary, Residential Capital,
has been widely expected in the coming weeks, when the unit faces
more than $300 million of bond-related payments. It recently missed
a $20 million bond-interest payment, which has a grace period until
May 17.
ResCap, once one of the largest subprime-mortgage lenders in the
country, has been a drag on Ally, which halted plans for an initial
public offering last year as mortgage woes mounted.
While no decision on a ResCap bankruptcy has been made, the
official said the Treasury would support such a move if ResCap's
board and Ally decide to do so. Dealing with ResCap's liabilities
from bad mortgage investments will put the Treasury in the
strongest position to maximize its investment in Ally, the official
said.
Getting Treasury's blessing is a necessary step if ResCap does
file for bankruptcy, but it does not change timing for a possible
filing, a person familiar with the matter said. Last month, Ally
said it could lose up to $1.25 billion if ResCap files for
bankruptcy.
The former in-house financing arm of General Motors Co. (GM),
Ally was bailed out as part of the government's broader rescue of
the auto industry.
The U.S. owns about 74% of Ally, which received more than $17
billion in aid during the financial crisis. Of that, about $5.5
billion has now been repaid.
Ally has explored a so-called prepackaged bankruptcy that would
result in the sale of ResCap's assets to Fortress Investment Group
LLC (FIG), The Wall Street Journal reported in March.
Michael Carpenter, chief executive of Ally, has planned to sever
ResCap from Ally so that the company can focus on its core
auto-lending and online banking business. He has repeatedly
stressed that ResCap is a separate company from Ally with its own
board of directors and has conducted transactions with Ally at
"arm's length."
-By Alan Zibel, Dow Jones Newswires; 202-862-9263;
alan.zibel@dowjones.com
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