John Paulson and David Tepper are among investors urging Ally Financial Inc. to back Residential Capital LLC as the government-owned lender weighs options for the mortgage unit, said three people familiar with the matter.
Paulson & Co. and Tepper’s Appaloosa Management LP are part of a group of bondholders organizing to seek full repayment of ResCap’s debts, said the people, who declined to be identified as the deliberations are private. White & Case LLP represents the group, which holds $800 million of ResCap debt, according to a statement from the law firm that didn’t name the investors.
As Ally, the former financing arm of General Motors Corp., prepares for an initial public offering that will help it repay $17.2 billion in government bailout funds, its mortgage unit faces lawsuits over faulty loans that may wipe out the parent’s profits. Ally is working on a plan to separate itself from those liabilities, which could involve selling ResCap in bankruptcy court, one of the people said.
“A forced ResCap filing would be a big mistake and create significant litigation against Ally,” Gerard Uzzi, a partner at White & Case in New York, said in the statement.
ResCap is working with lenders, Ally and the Treasury Department and aims to devise a solution by March, one person said. The unit may seek permission from bondholders for a bankruptcy filing that would enable an asset sale, according to the person.
Gina Proia, a spokeswoman for Detroit-based Ally, didn’t comment on the bondholder group.
“We decline to comment on speculation,” she said in an e- mail in response to questions about whether Ally is considering a bankruptcy filing for ResCap.