Ally Financial’s ResCap is filing for bankruptcy
ALLY Financial’s Residential Capital unit is nearing a bankruptcy filing, sources familiar with the situation said yesterday, in a move that could help the US taxpayer-owned car lender shed its troubled mortgage business but also spur drawn-out legal fights.
The board of ResCap was set to meet late yesterday and a pre-arranged bankruptcy filing, where Ally has the support of some creditors for its plan but not all, is expected to follow soon after, sources said.
Ally, the former lending arm of General Motors, has been besieged in the past few years by losses in its Residential Capital mortgage unit, which was once a major subprime lender and profit engine.
Under the new plan, Fortress Investment Group is expected to make an opening bid of more than $2bn (£1.24bn), including debt, to buy certain ResCap assets, while Ally would buy the rest, in a bid to turn all ResCap assets into cash.
Barclays on its own is arranging a $1.45bn debtor-in-possession financing for operations during the bankruptcy, sources have said. A big chunk of that facility is expected to be sold to investors by the time it is announced.
Ally spokeswoman Gina Proia and Fortress spokesman Gordon Runte declined to comment. Barclays was not immediately available for a comment, but had earlier declined to comment on the DIP loan.
A bankruptcy of ResCap would clear the path for Ally, formerly known as GMAC, to focus on its main auto lending business and to put together a plan to pay back US taxpayers.
The US Treasury injected $17bn into the lender during the financial crisis and now owns nearly 74 per cent of the company. Ally owes the government about $12bn, counting dividend payments by the lender and sale of some securities by the Treasury.
The filing would come as pressure increases on Ally to repay that money and problems at ResCap become increasingly unmanageable, sources have said. The Obama administration is trying to show recoveries from crisis-era bailouts before the presidential election in November.