* Mortgage company on track to exit bankruptcy by year's end
* Confirmation follows settlement with objecting bondholders
By Nick Brown
NEW YORK, Dec 11 A U.S. Bankrutpcy Court on
Wednesday approved Residential Capital's plan to exit Chapter 11
putting the mortgage lender on track to end its 19-month
bankruptcy before year's end.
The former Ally Financial Inc subsidiary
received the green light on the plan at a hearing in the U.S.
Bankruptcy Court in Manhattan, eight days after it struck a deal
resolving objections from a group of bondholders.
The plan, based on a $2.1 billion contribution from Ally,
could go into effect as early as next week, and definitely by
Dec. 24, a lawyer for ResCap said. The exit from bankruptcy
means thousands of creditors, including owners of residential
mortgage-backed securities that collapsed in the 2008 mortgage
crisis, could see recoveries.
"No one should lose sight of the homeowners and borrowers,"
U.S. Bankruptcy Judge Martin Glenn, who oversaw the bankruptcy,
told a packed courtroom.
The confirmation of the plan also means Ally, now part-owned
by U.S. taxpayers, can turn its attention to repaying the U.S.
government for a $17 billion bailout during the crisis.
ResCap had serviced more than $374 billion in U.S.
residential mortgage loans before declaring bankruptcy in May
2012 to address soaring mortgage liabilities. Glenn, who also
presided over the bankruptcy of MF Global, called ResCap the
"most complex" case he has overseen in seven years on the bench.
Earlier this year, ResCap reached a global settlement with
affiliates and others to settle potential legal claims and
create a recovery pot for creditors.
But one group of junior bondholders that included Aurelius
Capital Management and Marathon Asset Management opposed the
plan saying it would not pay them enough interest.
The battle proved central to ResCap's efforts to exit
bankruptcy, with the sides going to trial twice on different
phases of the objection. Essentially the bondholders, already
receiving their full principal and pre-bankruptcy interest -
about $2.2 billion - demanded an additional $340 million in
Closing arguments in the second phase of the trial had been
slated for Wednesday, but the sides settled on Dec. 3, with
ResCap agreeing to pay the group $125 million.
In confirming the plan on Wednesday, Glenn chided the
bondholder group for a scorched-earth litigation approach that
he said may have cost the ResCap estate more than $100 million.
"I'm firmly convinced that the result before me today could
have been achieved months ago, with cost savings to the estate,"
the judge said.
The bankruptcy is: In re Residential Capital LLC, U.S.
Bankruptcy Court, Southern District of New York, No. 12-12020.