Bankruptcy Judge Martin Glenn has called out a Warren Buffett-led group of creditors for hurting bankrupt mortgage company ResCap.
Judge Glenn ruled Friday a group of junior secured bondholders were not entitled to more than $300 million in interest for the 18 months the Ally Financial subsidiary has been in bankruptcy.
Buffett’s Berkshire Hathaway has long had a controlling interest in the $2.2 billion bondholder group and the lawyer for the company has been in court recently regarding the issue.
“It should not be lost on anyone that the [Buffett-led group] stand virtually alone in this case in failing to reach a consensual agreement to resolve their issues,” the judge wrote. “The result has been protracted proceedings that have burdened the estate and reduced funds available to satisfy creditor claims. That is unfortunate.”
Government-owned ResCap is scheduled to hold a confirmation hearing next week.
At that time, Judge Glenn is expected to rule on the second phase of the Buffett group’s complaints.
“The chances of success in the second phase are low,” a source in the case said, “because the judge hates that group of creditors.”
Buffett has laid low in the proceedings letting hedge fund Aurelius Capital take a lead position.
Besides post-bankruptcy interest, the Buffett-led bondholder group is claiming the face value of its debt should be paid in full, while ResCap is seeking a $387 million discount.
If Judge Glenn rules against them again, the bondholder group will likely appeal, the source said.
At that point, parent Ally may settle. The bank may want to get rid of what is ultimately a $700 million dispute before an expected move to go public or seek a buyer.
An appeal process could take more than a year, the source said. Ally still owes Uncle Sam $11 billion in loans.
Judge Glenn ruled against the Buffett group because he said it was not entitled to all the collateral it claimed.
A Buffett spokesman did not return calls for comment.