--Ally to receive release from legal liabilities under
settlement
--Ally plans to record a $1.55 billion charge related to the
settlement in the second quarter
--Ally had previously offered to pay $750 million but ResCap
creditors balked at that amount
(Updates with new details throughout.)
By Andrew R. Johnson
Ally Financial Inc. said Thursday it will pay $2.1 billion to
its mortgage subsidiary Residential Capital and the unit's
creditors under an agreement reached last week that could move the
Detroit-based lender closer to repaying its government bailout.
The amount is $1.35 billion more than what Ally previously
offered to pay to fend off ResCap creditors trying to hold the
government-owned lender responsible for billions of dollars of the
mortgage subsidiary's liabilities.
"Reaching this comprehensive agreement enables Ally to turn the
page on a tumultuous chapter in its history," Michael Carpenter,
chief executive of Ally, said in a statement.
The deal, which requires court approval, also paves the way for
ResCap to move forward on a plan that could ease its exit from
Chapter 11 bankruptcy. A fight between Ally and ResCap's creditors
over the parent company's financial obligations has bogged down
proceedings, which have been underway for more than a year.
Under the settlement, Ally and ResCap's major creditors have
agreed to support a reorganization plan that ResCap plans to file
soon, according to motion ResCap filed Thursday in U.S. Bankruptcy
Court.
"The resolution embodied in the agreement has garnered support
from many of the debtors' largest" creditors, ResCap said,
including trustees for its mortgage-backed securities, unsecured
bondholders, and a committee representing ResCap's unsecured
creditors, including American International Group Inc. (AIG), MBIA
Inc. (MBI) and Allstate Corp. (ALL).
Ally's payment is significantly larger than its previous offer
of $750 million, which Mr. Carpenter had described as a "hostage
payment" to ResCap creditors.
Ally has already reserved for the $750 million it initially
planned to pay and expects to take a charge of $1.55 billion in the
second quarter related to the new agreement. The company's payment
to ResCap's bankruptcy estate will include $1.95 billion in cash
and $150 million in insurance proceeds it expects to receive under
the plan.
Ally and ResCap first announced they had reached a new deal on
May 14, though the parties have kept the specific details
confidential until now.
The agreement also allows Ally to receive full repayment of its
secured claims in ResCap's bankruptcy, which includes $1.13 billion
owed to it under existing credit facilities.
ResCap's creditors, AIG, Paulson & Co., MBIA and Allstate,
had balked at Ally's previous offer. They argued Ally controlled
ResCap prior to the mortgage subsidiary's bankruptcy and stripped
the unit of valuable assets, making it responsible for ResCap's
liabilities.
Ally pushed back against such claims, arguing the companies
operated independently of each other. But the scheduled release of
an independent examiner's report last week helped accelerate
negotiations among the parties through a court-appointed
mediator.
The report's findings, which were ultimately filed under seal
and have not been made public, could potentially fuel creditors'
arguments that Ally exerted full control of ResCap. Judge Martin
Glenn last week agreed to keep the report filed under seal until as
late as July 3 as long as ResCap met certain milestones, including
filing of settlement documents by Thursday.
ResCap creditor Berkshire Hathaway Inc. (BRKA, BRKB) on
Wednesday filed a motion asking the court to make the report
public, arguing its findings are necessary for creditors to
determine if the settlement reached last week is a fair deal.
The settlement could be terminated, though, if the examiner's
report is disclosed to any party before the court approves ResCap's
plan support agreement, according to terms laid out in ResCap's
court filing.
ResCap, once the fifth-largest mortgage servicer in the country,
filed for Chapter 11 bankruptcy on May 14, 2012, as litigation over
soured mortgage securities mounted and bond payments loomed. The
move was intended to help Ally, which is 74%-owned by U.S.
taxpayers and not part of the bankruptcy, make a clean break from
ResCap so it can move forward with repaying the $17.2 billion
bailout it received during the financial crisis.
The company has repaid about $6.1 billion of that amount
including dividends and interest, and executives have set their
sights on eliminating $5.9 billion of the firm's preferred shares
owned by the U.S. Treasury Department.
But uncertainty over ResCap's mortgage-related liabilities
scuttled plans Ally had in 2011 for an initial public offering that
could facilitate a sale of the U.S. Treasury's stake in the company
and contributed to the Federal Reserve in March denying a capital
plan Ally submitted under the regulator's most recent round of bank
"stress tests."
Mr. Carpenter has said an IPO could still be a possibility in
the future, and the company has had conversations with the Fed on
submitting a new capital plan.
Ally, the former in-house financing arm of General Motors Co.
(GM), wants to focus solely on its U.S. auto-lending and
online-banking operations. The company generates a significant
portion of its business from financing GM and Chrysler Group LLC
dealers and car buyers.
-Joseph Checkler contributed to this report
Write to Andrew R. Johnson at andrew.r.johnson@dowjones.com
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