By Dow Jones Business News, October 02, 2013, 12:38:00 PM EDT
By Patrick Fitzgerald
Residential Capital LLC, the mortgage lender controlled by government-owned finance company Ally Financial Inc., wants
to pay a $2 million bonus to its chief restructuring officer for shepherding the company through bankruptcy.
ResCap said in a court filing that Lewis Kruger, a bankruptcy lawyer at Stroock & Stroock & Lavan, who took over in
February to lead ResCap's restructuring efforts, deserves a "success fee" for hashing out the terms of a far-ranging
settlement with ResCap's creditors and its corporate parent.
The success bonus comes on top of Mr. Kruger's $895 hourly fee for work tied to ResCap's bankruptcy. The CRO's
appointment came at a time when ResCap's restructuring was clouded in uncertainty as creditors argued that the mortgage
lender's board couldn't be trusted to aggressively negotiate a settlement with Ally.
Before Mr. Kruger's appointment, ResCap's restructuring case had reached a critical point with settlement talks
between Ally and its creditors at a dead end. Ally had proposed to pay $750 million to ResCap's estate as long as it was
released from liabilities. Creditors have balked at that number as far too low.
ResCap officials believe "Mr. Kruger's ability to provide creditors with comfort that the debtors were led by an
independent fiduciary with no ties to AFI," was a key reason in getting the talks back on track and that led,
ultimately, to the filing of a Chapter 11 plan for the company.
In addition to overseeing ResCap's restructuring efforts, Mr. Kruger eventually took on many of the roles of ResCap's
chief executive, the company said. Former Bear Stearns executive Thomas Marano, who led ResCap for five years, resigned
as the company's chief executive in May.
ResCap paid $8 million to Mr. Marano last year. The Treasury Department, which oversees the pay of top executives at
bailed-out companies, approved that deal, just weeks before ResCap filed for bankruptcy.
ResCap's Chapter 11 plan is based on parent Ally, which isn't under Chapter 11 protection, paying $2.1 billion to its
subprime mortgage subsidiary and its creditors in return for protection from litigation over its subsidiary's mortgage
The mortgage lender filed its plan to reorganize--and ultimately liquidate--in early July. A hearing on the plan is
scheduled for Nov. 19. The lender is seeking court approval of Mr. Kruger's bonus at a hearing on Oct. 9
ResCap, 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 company sold its main assets--a mortgage-servicing platform to Ocwen Financial Corp. ( OCN ) and Walter Investment
Management Corp. ( WAC ) and a portfolio of loans to Berkshire Hathaway Inc. (BRKA, BRKB)--for more than $4 billion.
The ResCap bankruptcy filing was intended to help Ally to sever itself from the issues surrounding its subsidiary so
that 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.
The finance company is looking to buy back $5.9 billion of preferred shares that the Treasury Department owns in the
company as part of the agency's bailout of the bank during the financial crisis. Ally is also looking raise $1 billion
through a private placement as it maneuvers to free itself from government ownership.
(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection. Go to
Write to Patrick Fitzgerald at firstname.lastname@example.org
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