The government controlled Ally Financial Monday morning said its board has voted to place Residential Capital into Chapter 11 bankruptcy protection while it finalizes a deal to sell substantially all of its assets to Nationstar Mortgage for $4 billion.
In total, 50 ResCap affiliates are affected by the filing.
Ally noted that ResCap has secured $1.45 billion of debtor-in-possession financing from a group of banks led by Barclays Bank.
The bank holding company said the filing will permit ResCap to continue originating new mortgages and servicing its $380 billion portfolio.
The legal maneuvers also will: “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.”
As part of the filing, Ally and ResCap said they have reached a global settlement of potential claims each entity and its affiliates had against the other, “which settlement will provide ResCap with substantial value. In the unlikely event that ResCap does not obtain confirmation of its proposed reorganization plan, ResCap will still seek to close the sales to Nationstar and Ally Financial.”
As of Monday morning institutional investors holding more than 25% of at least one class in each of 290 MBS securitizations have agreed to support the reorganization.
“These 290 securitizations have an aggregate original principal balance of approximately $164 billion. As a total of 392 securitizations, with an aggregate original principal balance of approximately $221 billion, remain outstanding, it is clear that the ResCap reorganization has broad support among institutional investors. The settlements are subject to Bankruptcy Court approval,” Ally said.
Although Nationstar has agreed to buy most of Residential Capital Corp.’s mortgage assets, the sale is by no means a done deal, according to ResCap mortgage CEO Tom Marano.
In an interview with ASR sister publication National Mortgage News, Marano noted there are two “stalking horse” bids on the table for ResCap though he said “we’re very happy” with the Nationstar bid.
Asked whether Nationstar has the financial wherewithal to complete the sale and grow the new, resulting company, he indicated there are “billions of dollars of private equity money” available on this deal.
The ResCap CEO said the bid process will be completed within 90 days. The sale should close by yearend. Meanwhile, “it will be business as usual” at the company, he said, with ResCap funding new loans and refinancing HARP mortgages and other products.
Although the total price for ResCap could generate $4 billion in proceeds, the deal actually has two components: a $2.3 billion bid by Nationstar for servicing and other assets, and a $1.6 billion bid by Ally Financial for loans in portfolio. (Ally, the parent of ResCap, is 74% owned by the U.S. Treasury and hopes to go public this year.)
Marano, who will eventually leave Ally and join the new firm, said he is optimistic about the new company. “This is a huge opportunity,” he said. “It will create the largest nonbank servicer in the country.”
He stressed that he sees no layoffs coming as a result of the bankruptcy/sale and that ResCap is currently in a hiring mode and will continue to originate and service loans. “I don’t anticipate any layoffs,” he said.
He also seemed happy that ResCap has worked out a deal with private-label MBS investors to settle $8.6 billion in claims. He said in the end the settlement will cost the lender roughly $1.5 billion.
ResCap’s bondholders — who must approve any transaction — are “nearly done” with their review of the deal, Marano said.