Bankrupt mortgage lender Residential Capital LLC made no effort to put a value on the legal claims that are now an obstacle to its plan to repay creditors, the company's restructuring chief said on Wednesday.
ResCap is in the midst of a six-day hearing before Judge Martin Glenn, seeking approval for the plan that would allow it to end its Chapter 11 bankruptcy proceeding and begin paying back creditors, including the owners of residential mortgage-backed securities that collapsed in the 2008 mortgage crisis.
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Most creditors support the plan, but one group of bondholders wants the plan thrown out because they say it shortchanges them by $340 million in owed interest payments.
At the center of the dispute are potential claims for money owed between the company's various corporate entities and whether they have value.
At a hearing on Wednesday, a lawyer for the bondholders asked the company's restructuring chief, Lewis Kruger, whether he and his team of advisers made efforts to quantify what the claims may have been worth.
Kruger said they did not do so.
"Even if I took the time and had the ability and skill set to put value on all of those, I'm not sure everyone would agree, and we'd be back here fighting over my values," Kruger said.
Instead, Kruger said, the company tried to reach a compromise that all sides could live with, and that would save the company years of expensive litigation and delay creditor payouts.
Approval of the payback plan would allow ResCap's former parent, Ally Financial Inc , which is now part-owned by U.S. taxpayers, to focus on repaying the federal government for a $17 billion bailout during the crisis. Ally, which contributed $2.1 billion to ResCap to resolve potential claims that it spurred ResCap's downfall, repaid $5.9 billion to the U.S. Treasury on Wednesday.
The value of the intercompany claims is central to the bondholder dispute.
Under a settlement that resolved disputes between ResCap, its affiliates and its creditors, intercompany claims between ResCap's corporate entities were determined not to have value. The bondholders say they own a lien on those claims, and that the settlement unfairly strips them of that lien.
The lien could allow the group to recover as much as $340 million in interest payments, on top of the roughly $2 billion already afforded it under the plan, equivalent to its full principle and pre-bankruptcy interest.
The bondholders are the last key holdout among creditors who largely support the plan. Glenn has been critical of the group for causing ResCap's estate to expend resources on litigation. In October, Glenn ruled that the group's collateral was worth less than it was owed, meaning it was not entitled to the interest it is seeking.
But it continues to assert its demand on grounds that its collateral may be worth more later, if it can show that the intercompany claims have value.
ResCap had serviced more than $374 billion in U.S. residential mortgage loans before it declared bankruptcy in May 2012 to address soaring mortgage liabilities.
The bankruptcy is In re Residential Capital LLC, U.S. Bankruptcy Court, Southern District of New York, No. 12-12020.
(Reporting by Nick Brown; Editing by Ken Wills)