ResCap Says Berkshire Offered $1 for Company's Equity in April
06/15/2012| 01:48pm US/Eastern
By Joseph Checkler
Residential Capital LLC says Warren Buffett's Berkshire Hathaway Inc. (BRKA, BRKB) made an offer to buy all of ResCap's equity for $1 before the mortgage servicer was put into bankruptcy last month.
In a Thursday filing with U.S. Bankruptcy Court in Manhattan, ResCap said government-owned parent company Ally Financial Inc. received the $1 offer in April, but Berkshire never showed interest in becoming the "stalking-horse" bidder for ResCap assets.
"Not even in advance of filing an objection to the Sale Procedures and making a bid on the Purchased Assets did Berkshire have even one conversation with the Debtors," or their advisers, ResCap said in a court filing.
A Berkshire Hathaway spokesman didn't immediately respond to a request for comment about the $1 offer.
ResCap was put into bankruptcy on May 14 with a plan in place to sell a loan portfolio to Ally for $1.6 billion and its mortgage-servicing portfolio to Nationstar Mortgage Holdings Inc. (NSM) for $2.4 billion. Those offers would be subject to higher bids at auction, the procedures of which have become highly contested by Berkshire and others and are set to be argued in court next week.
Berkshire Hathaway, which owns $900 million of ResCap's junior secured bonds and owned more than $500 million of its unsecured bonds before recently selling them, is also asking for an independent examiner to be appointed in the case to investigate ResCap's pre-and post-bankruptcy relationship with Ally, which isn't in bankruptcy. ResCap opposes an examiner, saying that an investigation being conducted by the company's official committee of unsecured creditors is enough.
Berkshire and investment firm Lone Star said in court filings that they want to bid on the ResCap assets being auctioned. Both parties, as well as the Justice Department's federal bankruptcy watchdog, have panned a $72 million breakup fee that would be paid to Nationstar, a unit of Fortress Investment Group LLC (>> Fortress Investment Group LLC), if a higher bidder wins the auction. Berkshire's proposed breakup fee for the mortgage portfolio would be a third of that.
In a separate filing Thursday, ResCap said it has made "substantial progress" in overcoming creditors' objections to a $150 million bankruptcy loan being made from Ally to ResCap. That loan is the smaller of the two so-called debtor-in-possession loans ResCap is requesting: A group led by Barclays PLC (BCS, BARC.LN) is lending the company $1.45 billion, most of which a judge said ResCap could begin borrowing on at a hearing last month.
All of these matters and more are scheduled to be argued in court on Monday in front of Judge Martin Glenn of U.S. Bankruptcy Court in Manhattan, who expressed doubt in court last week over whether everything can get done in one day. A lawyer for ResCap did say that a motion over the procedures for an auction and sale of the assets, which Berkshire, Lone Star and others are objecting to, could possibly be put off until later in the case as negotiations continue.
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.
(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection. Go to http://dbr.dowjones.com)
Write to Joseph Checkler at firstname.lastname@example.org. Follow him on Twitter at @JoeCheckler