ResCap seeks subordination of securities claims to unsecured claims

By Jim Witters

Wilmington, Del., Feb. 20 - Residential Capital, LLC is asking the court to declare that the residential mortgage-backed securities claims of several companies are subordinate to general unsecured creditors claims in the case, according to a Feb. 19 filing with the U.S. Bankruptcy Court for the Southern District of New York.

The adversary action came in response to a November assertion by the companies that their claims are not subordinated.

The companies holding the securities are AIG Asset Management LLC and its affiliates, Allstate Insurance Co. and its affiliates, Massachusetts Mutual Life Insurance Co., Prudential Insurance Co. of America and its affiliates and National Credit Union Administration Board.

ResCap says the claims arise from the purchase or sale of the equity and, therefore, should be subordinated under Section 510(b) of the bankruptcy code.

The code also requires subordination of the investor claims "to preserve subordination agreements among certificate holders by ensuring that recovery to certificate holders flows first through the agreed-upon securitization waterfalls," the complaint states.

Failure to subordinate the residential mortgage-backed securities will result in "a series of inequitable consequences," ResCap says.

No hearing on the adversary complaint has been scheduled.

Residential Capital, a New York-based mortgage originator and servicer, filed for bankruptcy on May 14, 2012. Its case number is 12-12020.

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