ResCap, committee file joint plan with $2.1 billion Ally contribution

By Caroline Salls

Pittsburgh, July 5 - Residential Capital, LLC and its official committee of unsecured creditors filed a joint plan of reorganization and related disclosure statement Thursday with the U.S. Bankruptcy Court for the Southern District of New York.

ResCap said the plan is premised on Ally Financial Inc.'s agreement to provide an additional contribution of $2.1 billion in plan funding, comprised of $1.95 billion in cash to be paid on the effective date and the first $150 million received by Ally for any directors and officers or errors and omissions claims it pursues against its insurance carriers related to the claims released in connection with the plan, provided, that Ally guarantees that the ResCap debtors of a liquidating trust will receive $150 million on account of those insurance claims.

In addition, the company said the plan settles a variety of highly complex disputes.

The terms of the global settlement include the following:

Settlement terms

• A settlement of the size, allocation, and priority of all of the claims asserted by residential mortgage-backed securities (RMBS) trustees arising from more than 1,000 RMBS trusts, including mortgage loan repurchase claims related to breach of origination or sale representations and warranties, cure claims and servicing-related claims;

• A settlement of the allowance, allocation and priority of the claims of specified monoline insurers, eliminating the need for litigation concerning the scope and nature of the claims held by these entities and the potential subordination of the claims;

• A settlement of tens of billions of dollars of private securities claims against the ResCap debtors, including claims involving Ally, arising from their structuring, sponsoring, underwriting and sale of RMBS.

The settlement of the private securities claims will be implemented through the establishment of a trust, which will settle and administer distributions to claimants;

• The establishment of a borrower claims trust, which sets a floor of available assets for distributions to borrowers and provides streamlined procedures for claimants to receive distributions.

The amounts distributed to the holders of borrower claims through the trust are in addition to roughly $230 million to be paid by the debtors through a settlement of foreclosure file review obligations;

• A resolution of $1,003,000,000 in claims held by senior unsecured notes indenture trustee Wilmington Trust, NA;

• An agreed-upon allocation of estate assets, to be distributed via three groups of debtors, the borrower claims trust, the private securities claims trust and an NJ Carpenters claims distribution;

• An agreed-upon allocation of projected administrative claims among the GMAC Mortgage, LLC (GMACM) debtors and Residential Funding Co., LLC (RFC) debtors, but not ResCap debtors;

• Payment in full of all administrative, secured and priority claims, including a junior secured notes claim;

• Subject to the approval of the bankruptcy court and U.S. District Court for the Southern District of New York, a settlement of the allowed claim amount and distribution to the NJ Carpenters class action members;

• A waiver of any subrogation claims held by the GMACM debtors and the RFC debtors against the ResCap debtors; and

• A compromise of all intercompany balances, potential subrogation claims, potential avoidance of historical debt forgiveness, claims relating to failure to charge debtor entities with allocable expenses and substantive consolidation.

Unit issuance

Liquidating trust units will be issued to holders of unsecured claims, other than borrower claims and NJ Carpenters claims, with an initial issuance amount of $100 million.

Each unit will entitle the holder to a share of liquidating trust cash available for distribution following the funding of the borrower claims trust, the making or reserving of payments for administrative, priority and other secured claims, distributions to NJ Carpenter claims, payment of junior secured notes claims and the funding of reserves for trust expenses.

Creditor treatment

Treatment of creditors under the plan will include the following:

• Administrative, secured and priority claims will be paid in full;

• Holders of general unsecured claims will receive a share of a unit distribution;

• Holders of borrower claims and private securities claims will receive cash distributions from their respective trusts;

• Holders of general unsecured convenience claims against the ResCap debtors will recover 36.3% in cash, holders of general unsecured convenience claims against the GMACM debtors will recover 30.1% in cash, and holders of general unsecured convenience claims against the RFC debtors will recover 9% in cash;

• Holders of equity interests and intercompany balances will receive no distribution;

• Holders of Federal Home Loan Mortgage Corp. (FHFA) claims will receive no recovery, provided, that if the court determines that the FHFA Claims are not subject to subordination, they will recover 3% in cash; and

• Any payment under an Ally revolving credit facility secured claim paydown order will be approved and allowed, provided that the holders of revolver claims will waive any right to receive additional interest or fees on account of those claims.

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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