(Reuters) - Ally Financial Inc’s proposed $2.1 billion agreement reached last month with creditors of its bankrupt Residential Capital LLC subsidiary cleared a key court deadline with only one vigorous objection, though several warning shots were fired.
Ally agreed to the settlement last month to end allegations it stripped ResCap of choice assets including the online lender, Ally Bank, before dumping the business into bankruptcy, which left creditors empty-handed.
“The court respectfully should stop this runaway train in its tracks and address fundamental defects in what mounts to a pre-approved plan of reorganization that violates basic tenets of law and is unconformable,” said Syncora Guarantee Inc, in the fiercest objection.
Syncora insured some of the mortgage-backed bonds issued by units of ResCap, which have fallen sharply in value, and it objected for a variety of reasons. Syncora alleged that ResCap did not explain how it decided to split money from the Ally settlement among different bond insurers.
The Department of Justice’s bankruptcy watchdog, plaintiffs in a class action and government’s pension insurer also objected as the deadline passed on Wednesday. Several parties also let the court know that while they were not formally objecting, they were taking up positions against the yet-to-be-filed reorganization plan.
The deal announced May 23 was meant to extract Ally from its disastrous foray into subprime home lending, allowing it to focus on its auto lending business and repaying the remainder of a $17 billion government bail-out.
The government owns about three-quarters of Ally, formerly General Motors Acceptance Corp, and is still owed more than $10 billion.
The Ally settlement is meant to be a blueprint for resolving ResCap’s contentious Chapter 11 and the deal needs the approval of the U.S. Bankruptcy Court in Manhattan.
ResCap plans to file a plan of reorganization by July 3 that will explain in more detail how creditors will be paid.
A hearing has been scheduled for June 26 before Judge Martin Glenn to approve the Ally settlement plan.
Reporting By Tom Hals in Wilmington, Delaware; Editing by Bernard Orr