Judge Clears ResCap to Pay $2 Million Bonus to Restructuring Chief

   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)

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