U.S. Bankruptcy Judge Martin Glenn approved Residential Capital’s reorganization plan this morning, Reuters reported, after a group of the company’s junior secured noteholders agreed to end its battle for post-petition interest and support the plan.
ResCap has said it hopes to emerge from Chapter 11 by Dec. 24.
Following a six-day contested plan-confirmation hearing last month, the so-called JSNs reached a settlement with the company last week, under which ResCap agreed to pay the noteholders an additional $125 million. Prior the settlement, ResCap’s plan provided for the JSNs to receive full payment on their claims, but the group argued it was also entitled to post-petition interest of $342 million. A bankruptcy court decision on Nov. 15 found that holders were undersecured and therefore not entitled to post-petition interest, although that ruling was not a final decision in the matter.
With the settlement, junior noteholders will now be granted an allowed claim in the case of roughly $2.347.5 billion, according to the amended reorganization plan. Holders have already received $1.1 billion, meaning they will be entitled to an additional $1.247.5 billion distribution pursuant to the company’s reorganization plan.
According to the company’s disclosure statement, unsecured creditors of the “ResCap debtors” will recovery 31.5-41.9% on their claims; unsecured creditors of GMACM will recover 26-34.7%; and RFC unsecured claim holders will see only 2.9-3.6% of their claims repaid.
ResCap filed for bankruptcy protection on May 14, 2012. Until then, the company had been one of the largest originators and servicers of mortgages in the U.S., a unit of Ally Financial, itself the former financing arm of General Motors. The company’s Chapter 11 petition listed total assets of $15.7 billion and total debt of $15.3 billion.
Berkshire Hathaway later won a bankruptcy auction for the company’s home-loan portfolio with a $1.5 billion bid. Ocwen Financial Corp. and Walter Investment Corp. paid $3 billion for ResCap’s mortgage-servicing unit.
The bankruptcy case largely hinged, however, on ResCap’s “historic” settlement with Ally, under which the former parent company agreed to pay $2.1 billion, a deal which topped Ally’s initial settlement offer by $1.35 billion. Ally agreed to contribute $1.95 billion in cash to the ResCap estate on the effective date of its plan, as well as the first $150 million from insurance proceeds it expects to receive related to releases in connection with the plan. The agreement also requires that Ally receive full repayment of its secured claims, including $1.13 billion owed under existing credit facilities.
The settlement was reached as part of a mediation in the case being led by Bankruptcy Court Judge James Peck. Ally’s potential liability to ResCap and, derivatively, its creditors, was a central issue in the proceedings. The crux of the dispute was whether Ally, using its corporate control over ResCap and its management, wrongfully engineered certain transactions beginning in 2006 that transferred key ResCap assets out of the reach of creditors in the wake of the housing-market meltdown, leaving ResCap insolvent and leading to its bankruptcy. – John Bringardner/Alan Zimmerman