Daily News: May 14, 2012

ResCap Board Approves Chapter 11 Filing, DIP Financing


Residential Capital LLC, known as ResCap, a subsidiary of Ally Financial Inc. and a mortgage originator and servicer, announced that its Board of Directors voted to file for Chapter 11 protection along with 50 of its subsidiaries. ResCap’s mortgage origination, servicing and other business activities, conducted through its subsidiaries, including GMAC Mortgage, will continue to operate as the Chapter 11 proceeds.

ResCap, like others in the mortgage industry, has faced continuing industry challenges, rising litigation costs and claims, and regulatory uncertainty. This Chapter 11 process is designed to:

  • Permit ResCap to continue as a going concern during the reorganization process, and to continue to provide uninterrupted, high quality service to its mortgage customers and business partners;

  • Permit ResCap to continue to originate new mortgage loans, service its more than 2.4 million consumer mortgage loans, and offer loan modifications that allow homeowners to stay in their homes;

  • Permit the ResCap business, post-reorganization and under new ownership, to continue to play an important role in preserving home ownership, providing necessary financing for home ownership, and contributing to bringing increasing stability to the U.S. mortgage markets;

  • Provide ResCap with the opportunity to maximize value for its stakeholders;

  • Permit ResCap to address legacy litigation and other liabilities in a manner that is fair to creditors; and

  • Preserve the existing jobs of ResCap’s employees, and contribute to the creation of additional jobs in the United States in the mortgage sector when ResCap’s business operations emerge from the reorganization process under new ownership.

    The Chapter 11 filings are intended to facilitate ResCap’s sale of substantially all of its assets. It has agreed to sell its mortgage origination and servicing businesses to Nationstar Mortgage LLC, and its legacy portfolio, consisting mainly of mortgage loans and other residual financial assets, to Ally Financial. Together, the asset sales are expected to generate approximately $4 billion in proceeds. ResCap has secured a $1.45 billion debtor-in-possession (DIP) financing from Barclays Bank PLC, as sole lead arranger and administrative agent on behalf of a syndicate of lenders. ResCap believes that this financing will provide it with sufficient liquidity to consummate the contemplated asset sales.

    In addition, ResCap has obtained support for a restructuring plan premised upon the sales described above from holders of ResCap’s junior secured notes holding a significant amount of the outstanding notes. Also, ResCap has obtained support from, and entered into a settlement agreement with, institutional investors in residential mortgage-backed securities issued by ResCap’s affiliates.

    Centerview Partners and FTI Consulting are acting as financial advisers to ResCap. Morrison & Foerster is acting as legal adviser to ResCap. Morrison Cohen LLP is advising ResCap’s independent directors.

    To view the bankruptcy petition, click here.