Ally Financial Inc on Tuesday agreed to an important deal with creditors of its bankrupt Residential Capital LLC subsidiary that will allow the lender finally to separate itself from its former mortgage business.
The details of the agreement will remain private until a request to approve the deal is filed next week with the U.S. Bankruptcy Court in Manhattan, which is overseeing ResCap's Chapter 11.
"This agreement is a seminal moment for Ally," said Ally Chief Executive Officer Michael A. Carpenter in a statement.
The settlement will allow Ally to put behind it problems tied to mortgage lending so it can focus on its U.S. auto lending business and its online bank.
Ally has raised billions of dollars by selling its international business and wants to use that money to repay the U.S. government, which still owns three-quarters of the company following a bailout.
Ally and the ResCap parties were still working out the details of how to implement the agreement, ResCap Chief Restructuring Officer Lewis Kruger said after a bankruptcy court hearing on Tuesday.
The agreement would shield Ally from all legal claims that could be brought by ResCap or its creditors.
The agreement also heads off the publication of a potentially damaging report by a court-appointed examiner who was charged with investigating claims by ResCap creditors that Ally stripped ResCap of valuable assets before its bankruptcy.
The examiner's report was filed on Monday, but under seal. Kruger said it would remain under seal till May 23.
The Ally deal will likely form the basis of a plan to allow ResCap to exit bankruptcy and repay its creditors, which includes about $3 billion owed to bondholders.
In addition, investors who bought mortgage bonds issued by ResCap entities claim they are owed money because they were misled about the quality of the mortgages backing those bonds. Tuesday's agreement will shield Ally from any further legal claims related to those bonds, according to a statement by Ally.
The U.S. government rescued Ally, formerly known as General Motors Acceptance Corp GMACA.UL, in the wake of the 2008 financial crisis with a $17 billion bailout.
(Reporting By Tom Hals in Wilmington, Delaware and Nick Brown in New York; Editing by Maureen Bavdek and Dan Grebler)