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Missed ResCap Payment Not Yet a Default

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Mortgage Daily

                                                 April 17, 2012

An interest payment was missed by Residential Capital LLC, according to a disclosure by its parent company. But the missed payment hasn’t yet triggered a formal default — though bondholders have previously postured for a potential bankruptcy.

ResCap missed a semi-annual interest payment that was due April 17 on $1.75 billion in indenture notes with a remaining principal balance of approximately $473 million, according to a Form 8-K filing Tuesday with the Securities and Exchange Commission by parent Ally Financial Inc.

The 6.50 percent notes, due in 2013, were issued in June 2005 and currently bear interest at the rate of 8.50 percent per annum. Deutsche Bank Trust Company Americas is trustee.

However, the SEC filing noted that the failure to pay interest by the interest payment date does not become an “event of default” unless it continues for at least 30 days.

Ally previously said that $2.3 billion in ResCap debt is maturing by next year.

Mortgage operations took a fourth-quarter hit of $237 million at Ally, while the third quarter was a $292 million loss for the business. Still, the losses were just a fraction of approximately $8 billion in losses at GMAC’s mortgage business during 2009 and around $5 billion in 2008.

But Ally said in its fourth-quarter report that ResCap’s tangible net worth fell below $250 million as of Dec. 31, 2011, though Ally expected to receive waivers from its lenders.

Reports have circulated that ResCap was considering selling itself in a pre-packaged bankruptcy.

ResCap has previously been described by GMAC as not being a consumer-facing brand.

Bankruptcy has been a possibility for ResCap for at least three years.

ResCap warned in June 2008 that it could be unable to independently satisfy its near-term liquidity, while GMAC discussed in a March 2009 filing how it might be impacted by a ResCap bankruptcy.

A June 2011 SEC filing by Ally warned that “there is substantial doubt about ResCap’s ability to continue as a going concern.”

Concern about a possible bankruptcy prompted the formation of a bondholder group announced by White & Case in January.

The group cautioned Ally about a ResCap bankruptcy.

“A forced ResCap filing would be a big mistake and create significant litigation against Ally,” a statement said.

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