Ally Financial Inc (NYSE:GMA) (NYSE:GKM) and the major creditors of its subsidiary, ResCap accomplished another step to implement a comprehensive settlement agreement and Chapter 11 plan.
Based on the settlement agreement supervised by court mediator James Peck, Rescap and its major creditors agreed to support a Chapter 11 plan that contains releases of claims for the benefit of Ally Financial Inc (NYSE:GMA) (NYSE:GKM).
ResCap filed for Chapter 11 bankruptcy after suffering from the collapse of the residential market that affected the economy of the United States several years ago. ResCap was the fifth largest company that provided approximately $374 billion in domestic residential mortgage loans for 2.4 million homeowners in the country.
Under the agreement Ally Financial Inc (NYSE:GMA) (NYSE:GKM) agreed to pay $1.95 billion in cash to the ResCap estate on the effective date of the Chapeter 11 plan. The automotive financial services provider will also contribute the first $150 million from insurance proceeds it will receive from releases associated with the plan.
The agreement also required that Ally Financial Inc (NYSE:GMA) (NYSE:GKM) must receive full repayment of its secured claims including the $1.13 billion owed under existing credit facilities. ResCap estate will be responsible for the cost and obligations related to the foreclosure settlement with the Department of Justice and the Attorney General. ResCap is also responsible for all the Consent Order directives originally addressed to it.
Securities Claims Against Ally Financial:
All claims between Ally Financial Inc (NYSE:GMA) (NYSE:GKM) and Rescap including all representation and warranty claims held by third parties associated with ResCap that could be brought against the automotive financial services provider and its subsidiaries will be released.
However, securities claims against Ally Financial Inc (NYSE:GMA) (NYSE:GKM) and its non-debtor subsidiaries by the Federal Housing Finance Agency (FHFA) and the Federal Deposit Insurance Corp (FDIC) are exempted from the release.
In a statement, Michael A. Carpenter, chief executive officer of Ally Financial Inc (NYSE:GMA) (NYSE:GKM) said, “Reaching this comprehensive agreement enables Ally to turn the page on a tumultuous chapter in its history that was severely impacted by the issues in the mortgage industry. Putting these issues behind us is in the best interest of our shareholders, employees and customers.”
Carpenter added that Ally Financial Inc (NYSE:GMA) (NYSE:GKM) is focused on moving forward and to devote its full attention and resources in its automotive financial services and direct banking franchises. “Ally holds leading market positions in these sectors, and further investing in these operations will enable the company to fully thrive,” said Carpenter.
Furthermore, Carpenter emphasized, “We also remain committed to repaying the remaining investment from the U.S. taxpayer. Ally has paid $6.1 billion to the U.S. Treasury to date and reaching closure on the ResCap matter is a critical step in successfully completing our strategic initiatives.”
Last December, Ally Financial Inc (NYSE:GMA) (NYSE:GKM) repaid $4.5 billion of debt it owed to the government during the financial crisis, and exited the Temporary Liquidity Guarantee Program of the Federal Deposit Insurance Corp.
Ally Financial Inc (NYSE:GMA) (NYSE:GKM) expects to record a charge of approximately $1.55 billion in the second quarter of 2013 related to the Chapter 11 plan and an increase in ligation reserves.