Struggling parent company pushes ResCap into Chap. 11
- Article by: JENNIFER BJORHUS
- Star Tribune
- May 14, 2012 - 9:12 PM
Fallen subprime mortgage lender Residential Capital filed for bankruptcy protection Monday as parent Ally Financial Inc., an auto lender that is majority-owned by U.S. taxpayers, struggles to pay back its $17.2 billion bailout.
Detroit-based Ally also said that it is launching a process to "explore strategic alternatives" for its international operations.
Residential Capital, called ResCap, is headquartered in Bloomington but employs only about 80 of its 3,600 employees there. It listed assets of $15.68 billion and liabilities of $15.28 billion, and more than 200 creditors in its Chapter 11 petition filed in U.S. Bankruptcy Court in the Southern District of New York.
"The action by ResCap will enable Ally to achieve a permanent solution to its legacy mortgage risks and put these issues behind us," Ally CEO Michael Carpenter said.
ResCap will sell its mortgage origination and servicing businesses to Nationstar Mortgage, and it will sell its legacy portfolio, which mostly holds mortgage loans and other "residual financial assets," to Ally Financial. Together, the sales are expected to generate about $4 billion.
Nationstar Mortgage Holdings, a non-bank loan servicer held by Fortress Investment Group, confirmed that it will be a stalking-horse bidder for certain ResCap assets in an auction.
Ally also will record a charge of $1.3 billion in the second quarter related to ResCap's bankruptcy.
Ally was formerly GMAC and was the finance arm of automaker General Motors Co. It has been open about wanting to unload ResCap as it works to pay back the U.S. Treasury the remaining $12 billion it owes. Speculation has swirled for weeks about the prepackaged bankruptcy.
When the package of initiatives is completed, Ally expects to return "at least another third" of the total in federal bailout money that it received, the company said.
Residential Capital was founded in Minnesota in the early 1980s and grew to become a major securitizer of subprime residential mortgages.
Jennifer Bjorhus • 612-673-4683
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