Group Warns Ally of "Significant Litigation" if ResCap Files Bankruptcy

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MORTGAGE EXPERT
1 · 09 · 12

While the possibility of a Residential Capital LLC bankruptcy has been around for years, several bond investors are so concerned about an imminent filing that they have formally organized to protect their positions.

Since at least 2008, ResCap has been warning about its possible demise.

In June 2008, ResCap warned an 8-K filing today with the Securities and Exchange Commission that it could be unable to independently satisfy its near-term liquidity requirements if liquidity needs increased. The following March, GMAC LLC discussed in an SEC filing how it might be impacted by a ResCap bankruptcy.

Just this past June Ally Financial Inc. warned in a public filing that “there is substantial doubt about ResCap’s ability to continue as a going concern.”

But now, several ResCap bondholders have become so concerned about a possible bankruptcy that they have organized a ResCap bondholder group.

Word of the group’s formation came Monday from White & Case, which said it represents broad range of bondholders including institutional holders and secondary holders with more than $800 million of secured ResCap bonds.

The investor move was made in response to recent press reports that Ally might be considering throwing ResCap into bankruptcy.

The group said it wants to work constructively with ResCap and its advisors to make sure they aren’t forced to discount their investments. It’s concerned that Ally will abandon the unit.

“Ally, Ally Bank and ResCap are too intertwined to be easily unwound,” Gerard Uzzi of White & Case said in the statement. “A forced ResCap filing would be a big mistake and create significant litigation against Ally.”

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