Berkshire, Nationstar Lead Bidders for ResCap Portfolios
06/19/2012| 01:16pm US/Eastern
--Auction for two portfolios scheduled to take place this fall
--Berkshire holds more than $900 million in ResCap bonds
--ResCap filed bankruptcy May 14
NEW YORK--Warren Buffett's Berkshire Hathaway Inc. (BRKA, BRKB) was named the lead bidder Tuesday in an upcoming auction of a portfolio of Residential Capital LLC's "legacy" loans, but it lost out to Nationstar Mortgage Holdings Inc. (NSM) to become the "stalking horse" for the ResCap mortgage-servicing assets that became the subject of an in-court bidding war Monday.
Judge Martin Glenn of the U.S. Bankruptcy Court in Manhattan approved procedures for auctions of the two sets of assets, both of which will take place this fall, after a ResCap lawyer announced that Nationstar had increased its initial $2.4 billion bid for the mortgage assets by a total of $125 million and substantially slashed the fee it would be paid if it loses at auction.
Meanwhile, Berkshire's latest bid for the legacy portfolio of ResCap mortgages--loans that are being held for sale--was $50 million higher than a $1.6 billion bid made by ResCap parent Ally Financial Inc., the originally proposed lead bidder for those assets. ResCap's board of directors approved both the Nationstar and Berkshire bids as the best initial offers for the assets.
"It's certainly the court's hope that the bidders who have been involved in the selection of a stalking horse will remain active bidders in an auction," Judge Glenn said. Berkshire, Nationstar and--ResCap hopes--others will bid on both sets of assets at auctions expected to take place in October or early November. A stalking horse has some advantages in such an auction, most notably that it is entitled to a break-up fee paid by the winning bidder should a higher offer emerge. Nationstar would get $24 million if it loses the mortgage assets, down from its original offer of $72 million. Berkshire would get $10 million if it is outbid for the other loan portfolio.
In a statement, Ally said its intention all along as a bidder for the legacy assets was to generate more value for ResCap. "We are pleased to have fulfilled Ally's role regarding ResCap's legacy loan portfolio and by ResCap's and the bankruptcy court's decision to select Berkshire Hathaway's superior stalking-horse proposal for these assets," the company said in an emailed statement. Berkshire didn't immediately respond to a request for comment.
Berkshire holds more than $900 million in ResCap's junior secured bonds and has become a loud voice in the company's barely month-old Chapter 11 case, initiated by Ally to try to separate itself from liabilities related to its mortgage-servicing wing. On Monday, Judge Glenn approved Berkshire's demand for an independent examiner to be named in the case to investigate dealings between Ally and ResCap. Later Monday, an impromptu bidding war broke out between Berkshire and Fortress Investment Group LLC's (>> Fortress Investment Group LLC) Nationstar for the portfolio of $374 billion in mortgages that comprises the biggest part of ResCap's business. At one point, Berkshire investment manager Ted Weschler actually made a bid while testifying on the witness stand.
As it got later on Monday, Judge Glenn sent the sides home with instructions to make one more "best, last" offer. They did.
Judge Glenn called the bidding a "no harm, no foul situation."
Looming bond payments and mounting litigation over soured mortgage securities prompted ResCap to file for Chapter 11 bankruptcy on May 14 in a move intended to help Ally sever itself from legal exposure. As part of the bankruptcy filing, Ally agreed to make the bankruptcy loan plus a $750 million payment to ResCap's estate.
-Andrew R. Johnson in New York contributed to this article.
Write to Joseph Checkler at firstname.lastname@example.org. Follow him on Twitter at @JoeCheckler
(CORRECTION: An earlier version of this story incorrectly stated in the sixth paragraph that Berkshire holds more than $900 million in ResCap's junior unsecured bonds. It holds junior secured bonds.)