ResCap Settlement Paves Way for Dec. 11 Plan Confirmation

   By Stephanie Gleason 
 

Residential Capital LLC has reached a settlement with junior bondholders that removes a barrier to final confirmation for the failed mortgage lender's liquidation plan a week before it asks a bankruptcy judge to confirm the plan.

The settlement provides those bondholders with an additional $1.25 million in cash, resulting in a $1.247 billion payment to the group when ResCap concludes its bankruptcy, expected for Dec. 24. That payment is on top of the $1.1 billion the group received earlier in the case.

The agreement concludes an issue that was fought out before the U.S. Bankruptcy Court in Manhattan during ResCap's six-day confirmation hearing last month. Rather than ask Judge Martin Glenn to rule for one side or the other, ResCap and the junior bondholders agreed to this partial payment of what the junior bondholders argued they were owed.

Junior bondholders, led by hedge funds including Aurelius Capital Management LP and Davidson Kempner Capital Management LLC, were slated to receive full payment of $2.2 billion in principal. However, the group also demanded the additional interest accruing since ResCap filed for bankruptcy in May 2012 at a rate of $152 million per year.

ResCap amended its liquidation plan Tuesday to reflect the settlement, and the company will ask Judge Glenn to approve the plan on Dec. 11.

With a settlement reached, junior bondholders, who initially voted against the plan, will be allowed to switch votes.

The plan, the result of mediation and months of negotiations, initially received the support of 95% of ResCap creditors. Junior bondholders were the only major creditor group holding out for better treatment under ResCap's plan.

Based on a settlement with ResCap's government-controlled parent Ally Financial Inc., the plan calls for Ally to pay $2.1 billion to settle creditor claims but absolves it from future liabilities in the case.

ResCap, once one of the country's largest mortgage servicers and mortgage lenders, filed for Chapter 11 protection as litigation over soured mortgage securities mounted and bond payments loomed.

The move was intended to help Ally, which isn't part of the bankruptcy, sever itself from those issues so it could focus on repaying the bailout it received during the financial crisis.

--Joseph Checkler 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 [e-mail]

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