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Ally Discloses ResCap Settlement Amount

Ally Financial Inc. has unveiled the terms of its proposed settlement with creditors of its bankrupt former subsidiary, Residential Capital LLC.

The New York-based company announced earlier this month that it had reached a settlement with ResCap bankruptcy estate and its major creditors that will “settle all existing and potential claims between Ally and ResCap and all potential claims held by third parties related to ResCap that could be brought against Ally and subsidiaries that are not Chapter 11 debtors, except for securities claims by the Federal Housing Finance Agency and the Federal Deposit Insurance Corp., as receiver for certain failed banks.”

Terms of the settlement, which was subject to approval by the bankruptcy court and definitive documentation, were kept confidential until the debtors filed a motion to approve the plan support agreement.

On Thursday, Ally disclosed that ResCap filed a motion seeking court approval of the plan support agreement.

The plan includes releases of all claims between Ally and ResCap, including all representation and warranty claims that reside with ResCap, according to the announcement.

In addition, the Chapter 11 plan terms also confirm that the ResCap estate has the responsibility for the cost and obligations of the multi-state servicer settlement and all Office of the Comptroller of the Currency consent order directives originally addressed to ResCap.

The settlement will cost Ally $1.950 billion in cash. In addition, Ally has agreed to fork over the first $0.150 billion from insurance proceeds it expects to receive tied to releases in connection with the plan.

As part of the agreement, Ally will receive full repayment of its secured claims, including $1.13 billion that is owed under existing credit facilities.

The agreement and the plan, according to Ally, are subject to bankruptcy court approval and other conditions.

“Reaching this comprehensive agreement enables Ally to turn the page on a tumultuous chapter in its history that was severely impacted by the issues in the mortgage industry,” Ally Chief Executive Officer Michael A. Carpenter stated in Thursday’s news release. “Putting these issues behind us is in the best interest of our shareholders, employees and customers.”

A $1.55 billion second-quarter charge in connection with the agreement is planned by Ally.

The settlement came a day after Berkshire Hathaway, one of the largest holders of ResCap’s junior secured bonds, made a filing with the bankruptcy court requesting access to an independent examiner’s report on transactions between ResCap and Ally prior to the May 2012 bankruptcy filing to help it determine whether the settlement is fair, the Wall Street Journal reported.

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