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 business.
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
http://dbr.dowjones.com)
Write to Patrick Fitzgerald at patrick.fitzgerald@wsj.com
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