On Dec. 3, sources reported that a New York hearing resulted in a deal being struck in an ongoing Chapter 11 case involving Residential Capital LLC. The mortgage lender initially entered bankruptcy in May 2012, but its plan to exit this status was previously blocked by a number of bondholders. Reports said that before filing, the company serviced more than $374 billion in residential mortgage loans in the U.S. alone.
Observers said that with the bondholder issues largely settled, the firm will be able to get out of Chapter 11 status before 2014. As a result of the exit plan, ResCap would be able to start repaying a number of creditors, including some who lost money on collapsed securities during the lending crisis of 2008.
Bondholders initially wanted to recover around $340 million in post-bankruptcy interest in addition to the $2.2 billion they were already slated to receive in principal and pre-bankruptcy interest. One attorney representing the bondholders noted that although his clients weren’t obligated to change their votes to approve the plan or receive payments, they wouldn’t be afforded legal releases if they didn’t.
Bankruptcy proceedings can become complex as creditors change their demands in order to recoup their losses. These prolonged hearings may make future investors wary or increase the difficulty that firms experience as they attempt to recover their losses and maintain normal business operations. Attorneys may be able to assist companies that are going through Chapter 11 proceedings by negotiating with bondholders on their behalf or by helping them come up with exit strategies that fulfill their obligations to creditors and regulatory agencies.
Source: Reuters, “UPDATE 2-ResCap resolves bondholder objection to Chapter 11 exit“, Nick Brown, December 03, 2013by