Auto lender Ally Financial Inc. (GJM) said Tuesday that it has entered into a comprehensive settlement plan with its bankrupt mortgage unit Residential Capital, LLC as well as the unit's major creditors that will settle all potential claims related to ResCap. The creditors claim that Ally owes them an estimated $25 billion in mortgage liabilities.
The confidential settlement plan, reached as part of the mediation with ResCap and its creditors, will settle all existing and potential claims between Ally and ResCap as well as all potential claims held by ResCap creditors that could be brought against Ally and subsidiaries that are not Chapter 11 debtors. The deal will also ensure that a report probing transactions between Ally and ResCap prior to ResCap's bankruptcy filing will remain under seal.
However, the plan excludes securities claims by the Federal Housing Finance Agency or FHFA and the Federal Deposit Insurance Corporation or FDIC, as receiver for certain failed banks. Ally said it believes it has strong defenses against these claims and will vigorously defend its position, as necessary.
Ally noted that the plan support agreement and Chapter 11 plan is subject to approval by ResCap's Bankruptcy Court and definitive documentation. The parties have agreed to keep the terms confidential until ResCap files a motion next week to approve the plan support agreement. However, Ally said that the economic consideration payable by it is not subject to further negotiation.
In mid-May 2012, Ally Financial said its troubled mortgage unit ResCap filed for Chapter 11 bankruptcy, paving the way for the auto lender to focus on its profitable auto finance and banking operations.
Ally Financial is 74 percent owned by the U.S. government after it received a bailout of more than $17 billion during the financial crisis, as part of the government's broader rescue of the auto industry. Ally still owes about $12 billion to the U.S. Treasury. The company is a former financing unit of automaker General Motors Co. (GM).
Michael Carpenter, CEO of Ally Financial said, "This agreement is a seminal moment for Ally. We are pleased to have reached a consensual and comprehensive agreement that enables the company to put the issues related to the mortgage industry behind us."
Carpenter added, "We remain confident in our strategic direction going forward and in the market position we hold with our leading dealer financial services and direct banking franchises. These franchises are the cornerstones of Ally's future success."
GJM closed Tuesday's trading at $25.52, up $0.03 or 0.12 percent on a volume of 14,501 shares.
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