By Dow Jones Business News, September 13, 2013, 03:35:00 PM EDT
A federal bankruptcy judge Friday approved Residential Capital LLC's$596.5 million mortgage-backed securities
settlement with bond insurer Financial Guaranty Insurance Co.
Judge Martin Glenn of the U.S. Bankruptcy Court in New York said ResCap's settlement with the monoline insurer was "
fair and equitable" and in the best interest of ResCap's creditors.
"It will resolve significant claims against the estates for far less than the amounts asserted and it imposes a cap on
FGIC's claims in case the contemplated plan is not confirmed," wrote Judge Glenn in a 53-page opinion.
ResCap struck a deal with the FGIC in June that cuts the bond insurer's $5.55 billion claim against its estate to $
596.5 million. The agreement also resolved another $1.3 billon in claims related to trusts insured by FGIC, the former
bond insurance unit of FGIC Corp.
A group of ResCap's junior bondholders had challenged the deal on the grounds that it wasn't in the best interests of
the estate. The bondholders argued that if ResCap's creditor payback plan wasn't approved, FGIC would be free to go
after claims worth much more than the $596.5 million. A group of hedge funds with investments secured by FGIC had also
challenged the deal, but it withdrew its objection earlier this week.
FGIC's parent company, FGIC Corp., filed for bankruptcy in 2010 and two years later the bond insurer was placed into
rehabilitation under the control of the state of New York.
The trustees, which include the Bank of New York Mellon, Wells Fargo and U.S. Bank, had asked Judge Glenn for a ruling
that they acted in the best interests of the investors in negotiating the settlement.
Judge Glenn's approval of the deal removes another hurdle to ResCap's plan to exit bankruptcy protection. That plan is
based on ResCap parent Ally Financial Inc., which isn't under Chapter 11 protection, paying $2.1 billion to its mortgage
subsidiary and its creditors in return for protection from litigation over its subsidiary's mortgage business.
ResCap filed its plan to reorganize--and ultimately liquidate--in early July. A hearing on the plan is scheduled for
The company, once the country's fifth-largest mortgage servicer and 10th-largest mortgage lender, filed for Chapter 11
protection in May 2012 as litigation over soured mortgage securities mounted and bond payments loomed.
The move was intended to help Ally to sever itself from those issues so it can focus on repaying the bailout it
received during the financial crisis.
Ally, formerly General Motors' main financing arm and once known as GMAC, is now 74% owned by the U.S. government
after receiving a bailout during the financial crisis that topped $17 billion.
(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection. Go to
-Joseph Checkler and Andrew Johnson in New York contributed to this article.
Write to Patrick Fitzgerald at firstname.lastname@example.org
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
Copyright (c) 2013 Dow Jones & Company, Inc.