Residential Capital got approval for a $2.1-billion deal with parent Ally Financial, which will help the company come up with a plan to repay creditors.
U.S. Bankruptcy Judge Martin Glenn, from Manhattan, said that he will approve the agreement which also requires ResCap’s creditors to accept the deal. Martin Glenn added that he might give the final approval for the deal as part of ResCap’s proposed reorganization strategy by the end of this year.
The reorganization strategy includes information on how the $6.3 billion will be split among creditors and also the $4.5 billion the company has managed to raise after selling a loan portfolio and its mortgage-servicing business. The judge said that without the approval of Ally, major creditors and ResCap the case will return to ‘square one.’
At the end of May, Ally agreed to pay $1.95 billion to the ResCap bankruptcy estate, and insurance proceeds worth $150 million to avoid lawsuits. According to the accord, Ally is guaranteed full repayment of the $1.13 billion it claims ResCap owes it. This settlement is more than twice the $750 million Ally previously accepted to pay in 2012 when ResCap filed for bankruptcy, but creditors considered that sum too little.