ResCap Sheds Light on Chapter 11 Exit

Mortgage lender Residential Capital filed a bankruptcy-exit plan that would pay general unsecured creditors 36.3 cents on the dollar and free government-owned parent Ally Financial Inc. from any more obligations in the case.

In filings made Wednesday with the U.S. Bankruptcy Court in Manhattan, ResCap took the next step toward shaking free of its messy Chapter 11 case, a costly proceeding that has produced huge asset sales, an historic settlement and a 1,900-page independent examiner's report.

ResCap filed both its exit plan and disclosure statement, a plain language reading of the plan. Those creditors, who received court approval on a $2.1 billion settlement with ResCap and Ally late last month, will receive different amounts of recovery based on which ResCap related entity owes them money, but most unsecured creditors will receive the 36.3 cents on the dollar.

"The Plan embodies a near global resolution of extensive intra-Debtor and inter creditor issues, permits the distribution of available proceeds to creditors, and is the best means to fairly and efficiently resolve the Debtors' Chapter 11 Cases," lawyers for ResCap and its official committee of unsecured creditors said in a joint filing.

The filing of the plan was made possible after ResCap's creditors reached the deal with Ally, which releases the government-owned parent from additional liabilities in the case. Retired U.S. Bankruptcy Judge Arthur J. Gonzalez concluded in his highly anticipated examiner's report that Ally could have been on the hook for as much as $3 billion in claims. A $750 million offer to creditors made at the beginning of ResCap's bankruptcy case would have been too low, Mr. Gonzalez said, a conclusion shared by the creditors who fought for more.

Some creditors had threatened to sue Ally to hold it responsible for ResCap liabilities, arguing ResCap existed solely for the benefit of Ally. The settlement, though, came after all sides agreed to allow Mr. Gonzalez's report to be filed confidentially as to not blow up any potential deal. The report was released publicly the day ResCap's bankruptcy judge approved the settlement.

The next major phase of ResCap's Chapter 11 case will be a period during which creditors cast their votes on the plan. The company, however, must first receive approval of the disclosure statement at a hearing set for Aug. 21. A court hearing on the plan itself is tentatively set for November.

ResCap, once the country's fifth-largest mortgage servicer and 10th-largest mortgage lender, filed for Chapter 11 protection in May 2012 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, to sever itself from those issues so it can focus on repaying the bailout it received during the financial crisis.

During its bankruptcy, ResCap struck deals to sell mortgage-servicing platforms and loan portfolios as a part of bankruptcy auctions that generated $4.5 billion in proceeds.

(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection. Go to )

--Andrew R. Johnson contributed to this article.

Write to Joseph Checkler at [e-mail]

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