Buffett's company to lead bidding for ResCap loans
Wednesday, June 20, 2012
OMAHA, Neb. (AP) — Warren Buffett's company scored a split decision Tuesday when it was named the lead bidder for Residential Capital's loan portfolio in a bankruptcy court auction. But Berkshire Hathaway Inc. lost to another bidder that will take that role for ResCap's mortgage division.
A New York bankruptcy court judge picked Berkshire's $1.44 billion bid as the lead, or stalking horse, bid for ResCap's loan portfolio.
Nationstar Mortgage, owned by Fortress Investment Group LLC, was named the lead bidder for ResCap's mortgage unit with its $2.45 billion bid.
A stalking-horse bid allows a company selling assets under bankruptcy protect to avoid low-ball bids. Others can later place competing bids, so serving as the stalking horse doesn't guarantee that Berkshire and Nationstar will ultimately acquire the assets.
The judge also approved Berkshire's request to have an outside expert review Residential Capital's dealings with its parent company, Ally Financial, before it filed for bankruptcy protection in May. Berkshire, which owned a significant portion of ResCap's unsecured bonds, requested the review because it alleges billions of dollars of ResCap's assets were transferred to Ally shortly before ResCap sought Chapter 11 bankruptcy protection.
ResCap spokeswoman Susan Fitzpatrick said the company is encouraged by the interest in bidding while it reorganizes.
"We anticipate the appointment of an independent examiner and hope that the work can be undertaken and completed promptly," she said.
Berkshire officials did not immediately respond to a message on Tuesday.
ResCap has been a drag on Ally's finances for years because it has struggled to make payments on its debt ever since the U.S. housing market collapsed in 2007.
Ally, which is 74 percent owned by the U.S. government, makes loans to General Motors Co. and Chrysler customers, and finances dealer inventories. The government first bailed out the company, then known as GMAC Inc., in late 2008 as part of the Bush administration's aid to the auto industry. The Obama administration provided additional funding in 2009.
Fortress came into this week's hearings as ResCap's preferred choice because its executives met with government officials and negotiated with ResCap before it filed for bankruptcy protection. And Fortress' Nationstar Mortgage business has an established servicing unit.
Fortress increased its bid on the mortgage business this week and lowered its breakup fee to secure the favored lead-bidder status.
Nationstar Mortgage officials did not immediately respond to a message on Tuesday.
Berkshire replaced Ally as the lead bidder for ResCap's loan portfolio, but Ally had said it had been a reluctant bidder.
Berkshire could add ResCap's loans to its existing collection of roughly $2.8 billion in mortgage-backed securities that it bought for about $2.5 billion. Berkshire hasn't explained why it wants ResCap's assets, but investors who follow the company believe Buffett is probably just looking to buy assets that are selling for less than they are worth.
Ally spokeswoman Gina Proia said the company had hoped its initial bid for ResCap's loan portfolio would help the company raise a significant amount of money for its reorganization, so Ally was pleased with Berkshire's bid.
"We continue to be optimistic about the ultimate value ResCap will achieve in the auction process," Proia said.
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