UPDATE 1-ResCap resolves bondholder objection to Chapter 11 exit

Nick Brown
Tuesday, 3 Dec 2013 | 2:00 PM ET

NEW YORK, Dec 3 (Reuters) - Bankrupt mortgage lender Residential Capital LLC has struck a deal with a class of bondholders to resolve the group's objection to its plan to exit bankruptcy.

In court papers filed on Tuesday, ResCap outlined a new exit plan which includes a $125 million payment to the bondholder group to settle its demands for millions of dollars in interest payments.

The objection had been the key hurdle to court approval of the plan, and the deal would appear to put ResCap on course to end its Chapter 11.

Lawyers for ResCap and the bondholders did not immediately respond to requests for comment.

A hearing to outline the settlement was scheduled for 2 p.m. EST (1900 GMT) in the U.S. Bankruptcy Court in New York. ResCap said in court papers it hopes to make the payments to the bondholder group and exit bankruptcy by Dec. 24.

Implementation of the plan would allow ResCap to begin paying back creditors who include owners of residential mortgage-backed securities that collapsed in the 2008 mortgage crisis.

It would also allow former parent Ally Financial, , which is now part-owned by U.S. taxpayers, to focus on repaying the federal government for a $17 billion bailout during the crisis. Ally had contributed $2.1 billion to fund recoveries for ResCap creditors, a cornerstone of the plan.

The bondholder group was on track to recover its full principal and pre-bankruptcy interest - worth about $2.2 billion - but had demanded another $340 million in post-bankruptcy interest.

The group, which includes Aurelius Capital Management and Marathon Asset Management, had claimed its collateral was worth more than it was owed, entitling it to interest.

The sides last week completed a six-day hearing on the matter before Judge Martin Glenn in the New York bankruptcy court, and closing arguments had been scheduled for Dec. 11.

Tuesday's hearing is an opportunity for the sides to outline the settlement and the new exit plan, though Glenn must give the deal his approval before it can go into effect, likely at a hearing later this month.

ResCap had serviced more than $374 billion in U.S. residential mortgage loans before it declared bankruptcy in May 2012 to address soaring mortgage liabilities.

The bankruptcy is In re Residential Capital LLC, U.S. Bankruptcy Court, Southern District of New York, No. 12-12020.