UPDATE 2-ResCap resolves bondholder objection to Chapter 11 exit
* Agrees to pay bondholder group $125 mln in additional interest
* Settlement paves way for Chapter 11 exit by year's end
By Nick Brown
NEW YORK, Dec 3 (Reuters) - Bankrupt mortgage lender Residential Capital LLC has struck a deal with a class of bondholders to resolve the group's objection to its plan to exit bankruptcy.
In court papers filed on Tuesday, ResCap outlined a new exit plan which includes a $125 million payment to the bondholder group to settle its demands for millions of dollars in interest payments.
The objection had been the key hurdle to court approval of the plan, and the deal puts ResCap on course to end its Chapter 11 case by year's end.
Implementation of the plan would allow ResCap to begin paying back creditors who include owners of residential mortgage-backed securities that collapsed in the 2008 mortgage crisis.
It would also allow former parent Ally Financial, , which is now part-owned by U.S. taxpayers, to focus on repaying the federal government for a $17 billion bailout during the crisis. Ally had contributed $2.1 billion to fund recoveries for ResCap creditors, a cornerstone of the plan.
At a hearing on Tuesday in U.S. Bankruptcy Court in New York, lawyers for ResCap and its creditors' committee said they hoped to bring the deal into effect and exit bankruptcy by Dec. 24. The sides will ask Judge Martin Glenn to officially approve the plan at another hearing set for Dec. 11.
The bondholder group was on track to recover its full principal and pre-bankruptcy interest - worth about $2.2 billion - but had been demanding another $340 million in post-bankruptcy interest.
The group, which includes Aurelius Capital Management and Marathon Asset Management, had claimed its collateral was worth more than it was owed, entitling it to the interest.
The sides last week completed a six-day hearing on the matter before Judge Glenn, and closing arguments had been scheduled for next week.
Lawyers for both sides worked over the last several days to hash out a deal, though Glenn said he ordered that no associate-level lawyers work during last Thursday's Thanksgiving holiday.
Gerard Uzzi, a lawyer for the bondholder group, said at Tuesday's hearing that his clients will now have the option to change their votes on the plan from opposed to in favor.
While they do not have to change their votes in order to receive their share of payouts under the settlement, Uzzi said, group members who remain opposed will not be entitled to certain legal releases.
Glenn can approve the plan even if certain creditors remain opposed.
The settlement will not require other creditors to cast new votes because the previous version of the plan already accounted for the possibility that additional payments would be made to the bondholders, lawyers said at the hearing.
ResCap had serviced more than $374 billion in U.S. residential mortgage loans before it declared bankruptcy in May 2012 to address soaring mortgage liabilities.
The bankruptcy is In re Residential Capital LLC, U.S. Bankruptcy Court, Southern District of New York, No. 12-12020.