Ally prepares to put mortgage unit into pre-planned bankruptcy
NEW YORK (Thomson Reuters IFR) -- Ally Financial, the former GMAC finance and banking company that provides loans to auto dealers and car buyers, is poised to sever its Residential Capital mortgage unit in a pre-arranged bankruptcy filing that could come as soon as Sunday.
The move comes years after Ally was first advised to dump the subprime mortgage lender when the housing bubble began to burst in 2007.
Ally previously tamped down plans to sever its money-losing ResCap unit in bankruptcy because of the near certainty of legal battles with ResCap creditors who would claim that ResCap and Ally are one and the same.
The expected fireworks between the two camps, however, appears to have been averted ahead of the expected filing, according to sources.
"The expectation is that ResCap will file without much recourse for creditors to attach claims to Ally," said a hedge fund manager holding ResCap debt.
"They will go in having packaged as much of the bankruptcy plan as possible," said a bankruptcy attorney involved in the case. "I'm not sure they'll have it all in a bow, but it will be close enough."
Indeed, hedge funds expected to lead the fight to pierce the corporate veil between Ally and ResCap, including Paulson & Co and Appaloosa Management, are now expected to stand down.
What Ally agreed to give creditors in exchange for their support -- cash, securities or a mix -- is unclear.
Ally has previously said a ResCap bankruptcy could cost it as much as $1.25 billion.
ResCap will file with a $1.45 billion debtor-in-possession loan from Barclays. The loan is backed by mortgage servicing rights, a significant portion of which Barclays already had liens against. When ResCap files, it is expected to have a deal in place to sell those assets as part of a pre-arranged plan of reorganization.
Fortress Investment Group also is expected to make a $2.4 billion bid for ResCap assets in a bankruptcy auction, according to sources.
In addition to the the debtor-in-possession loan, when it files ResCap will have the use of cash collateral and access to have existing facilities from other lenders, including Ally, according to one source.
Ally is also expected to bid for certain ResCap loan portfolios.Contact Automotive News