ResCap Estate Enters into Plan Support Agreement

NEW YORK, May 14, 2013 /PRNewswire/ -- Residential Capital, LLC (ResCap) today announced that, on the one-year anniversary of the filing of its Chapter 11 bankruptcy cases, the estate entered into a comprehensive plan support agreement with Ally Financial Inc. (Ally) and ResCap's major creditors to support a Chapter 11 plan. 

Entry into this settlement, which is subject to Bankruptcy Court approval, represents a major milestone in the ResCap proceedings.  The settlement was reached as part of the mediation with ResCap, its creditors and Ally.  The agreement settles existing and potential claims between ResCap and Ally and potential claims held by third parties in relation to ResCap, except for certain securities claims by the Federal Housing Finance Agency (FHFA) and the Federal Deposit Insurance Corporation (FDIC), as receiver for certain failed banks.  The detailed terms of the plan support agreement will be kept confidential until a motion is filed to approve the plan support agreement later this month.

Like many others in the mortgage industry, ResCap faced considerable regulatory and litigation exposures.  ResCap, then the fifth-largest servicer of residential mortgage loans in the United States and a leading mortgage loan originator, predictably suffered during the financial crisis.  In 2012, parent company Ally withdrew its support for ResCap due to, among other things, rep-and-warranty liability concerns, which liabilities were created primarily during the 2005 through 2007 origination years.  In May 2012, after having pursued various strategic alternatives and having lost the support of its parent company, ResCap filed for bankruptcy.  Through arrangements entered into with Ally, and debtor-in-possession financing from Barclays Capital, ResCap's origination business continued uninterrupted in bankruptcy.  During bankruptcy, ResCap originated in excess of $30 billion in new mortgage loans, and was a recognized leader in mortgage modifications. 

Management's careful planning and skilled execution preserved the value of ResCap's origination and servicing platforms, and led to successful bankruptcy asset sales to Ocwen Loan Servicing, LLC, Walter Management Investment Corp. and Berkshire Hathaway Inc.  These asset sales generated proceeds of approximately $4.5 billion, and preserved 3,750 of 3,900 U.S.-based jobs in communities where these jobs may not have been replaced.  These various arrangements and financings entered into by ResCap preserved substantial value for its creditors.  Now, the entry into this consensual agreement marks another important step toward bringing the ResCap Chapter 11 proceedings to a conclusion.

The settlement was reached as part of a mediation process among ResCap, its creditors and Ally, and through the tireless and thoughtful efforts of the Honorable James Peck.  The parties to the comprehensive settlement include: ResCap and its affiliated debtor entities, Ally and its consolidated subsidiaries, the Official Committee of Unsecured Creditors, AIG Asset Management (U.S.), LLC, Allstate Insurance Company, Financial Guaranty Insurance Company, counsel to the putative class of persons represented in the consolidated class action entitled In re: Community Bank of Northern Virginia Second Mortgage Lending Practice Litigation, filed in the United States District Court for the Western District of Pennsylvania, MDL No. 1674, Case Nos. 03-0425, 02-01201, 05-0688, 05-1386, Massachusetts Mutual Life Insurance Company, MBIA Insurance Corporation, Paulson & Co. Inc., Prudential Insurance Company of America, certain investors in RMBS backed by mortgage loans held by securitization trusts associated with securitizations sponsored by the Debtors between 2004 and 2007 and represented by Kathy Patrick of Gibbs & Bruns LLP and Keith H. Wofford of Ropes & Gray LLP, Talcott Franklin of Talcott Franklin, P.C., as counsel, certain holders of senior unsecured notes (Senior Unsecured Notes) issued by ResCap under the Indenture dated as of June 24, 2005, and certain supplements thereto, Wilmington Trust, National Association in its capacity as Indenture Trustee for the Senior Unsecured Notes, and certain trustees or indenture trustee for certain mortgage backed securities trusts. 

ResCap's Board of Directors acknowledges the leadership and wise counsel of Lewis Kruger, ResCap's Chief Restructuring Officer, for guiding these efforts, as well as the valuable contributions of ResCap's legal counsel, Morrison & Foerster LLP, led by Gary Lee, Todd Goren and Lorenzo Marinuzzi.

SOURCE Residential Capital, LLC