Residential Capital LLC should get more time to file an exclusive plan to reorganize while the bankrupt mortgage company remains in mediation with creditors, who say talks have stalled, a judge said.
U.S. Bankruptcy Judge Martin Glenn in Manhattan today scheduled a hearing for March 19 to decide whether a committee of unsecured creditors should get a “veto role” over any plan the company may file while it retains the exclusive right to reorganize.
Glenn approved ResCap’s request to hire a new chief restructuring officer, Lewis Kruger, and said he deserves time to try to put together a reorganization plan. The company wants 60 days during which no creditor is allowed to propose one.
“It may be at the end of 60 days, all bets are off,” Glenn said.
Glenn extended until May 31 negotiations with creditors and ResCap’s parent, Ally Financial Inc. The talks are designed partly to decide how much Ally must to pay to avoid a lawsuit over what it did before ResCap filed bankruptcy.
Ally, based in Detroit, had proposed paying creditors $750 million to settle all claims. The creditor committee opposed that settlement, saying it was too low.
ResCap’s board supported the settlement until last month, when the company agreed to hire Kruger and promised not to file a reorganization plan in the next few months without support from the creditor committee.
ResCap filed for bankruptcy last year, partly to help it resolve lawsuits brought by investors that purchased mortgage bonds backed by $226 billion worth of home loans. The lawsuits claimed the bonds lost value because many of the loans were bad.
