Reuters: Bankruptcy News: Examiner's report could spur ResCap creditors seeking Ally cash

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Examiner's report could spur ResCap creditors seeking Ally cash May 10th 2013, 10:59 By Tom Hals Fri May 10, 2013 6:59am EDT May 10 (Reuters) - A report on Friday could embolden creditors of bankrupt mortgage lender Residential Capital LLC to pursue billions of dollars of cash that its parent, Ally Financial Inc, had planned to use to repay a U.S. government bailout. The report by a court-appointed examiner deals with allegations of improper activity before the ResCap bankruptcy, including claims that Ally Bank was stripped from ResCap. ResCap creditors have said Ally, which is about three-quarters owned by the U.S. government, could be on the hook for up to $25 billion owed to them by ResCap. Former bankruptcy judge Arthur Gonzalez was appointed last year by the U.S. Bankruptcy Court in Manhattan to examine the prebankruptcy deals between Ally, ResCap, Ally investor Cerberus Capital Management LP and others. Gonzalez also investigated the negotiations that led to Ally's initial proposed settlement, which was rejected by ResCap creditors. Ally declined to comment ahead of Friday's report. Attorneys for ResCap and the official committee of unsecured creditors and a spokesman for Cerberus did not immediately respond to requests for comment. Examiners are only appointed in a small number of bankruptcy cases and their reports do not carry the weight of a court finding. The reports are often limited to identifying how certain allegations would likely stand up in court. Still, an examiner's report can sometimes upend a bankruptcy. The Chapter 11 of media conglomerate Tribune Co was on the brink of resolution when an examiner's report found it was "somewhat likely" there was fraudulent behavior in the company's leveraged buyout a year before its bankruptcy. That led to two years of infighting among creditors. Some ResCap creditors have their eyes on the billions of dollars Ally has raised by selling its international businesses. Ally plans to use that money to repay some of the $11 billion it owes the U.S. government and then focus on its U.S. auto lending business. Gonzalez's report could shift negotiations between creditors and Ally, which the creditors committee has said are getting closer to a deal. Ally offered to pay ResCap's estate $750 million, which Ally's Chief Executive Michael Carpenter called a "hostage payment." In return, Ally wanted a release from all legal claims. After ResCap creditors rejected that offer, the parties were ordered into mediation by U.S. Bankruptcy Judge Martin Glenn. ResCap was once one of the largest U.S. subprime mortgage lenders in the United States. It filed for bankruptcy in May 2012 as litigation over soured mortgage bonds mounted. It has offered investors that lost money on mortgage bonds an $8.7 billion unsecured claim in the bankruptcy. ResCap has the fourth-largest amount outstanding from the $700 billion bailout of the financial system that began in 2008, according to watchdog ProPublica. Washington propped up General Motors Acceptance Corp, or GMAC, as Ally was formerly known, with $17 billion during the financial crisis. ResCap still owes the U.S. government more than $10 billion. Link this Share this Digg this Email Reprints

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