Business

Hedgies: Boo$t Ally’s ResCap tab

The restructuring of Ally Financial’s bankrupt ResCap mortgage unit may be much more expensive than the Treasury Department thought — and that could ultimately cost taxpayers.

A group of hedge funds are preparing to push Ally, which is owned by US Treasury, to quadruple its contribution to the ResCap reorganization from the $750 million now on the table to $3 billion, several sources said.

“Ally can afford to pay $3 billion to $4 billion without impacting regulatory capital,” and satisfy all claims, according to a source close to the situation.

While that may or may not be true, every additional dollar contributed by Ally to the ResCap reorganization is a dollar less in value taxpayer-owned Ally has to pay back Treasury.

Canyon Capital Advisors, King Street Capital, Lone Star Funds, Moore Capital Management and Redwood Capital Management together, as of June, owned much of $900 million of unsecured debt, according to a bankruptcy filing.

They are pushing to be paid par, or 100 cents on the dollar, instead of the 15 cents now proposed, sources said.

Their debt now trades at 25 cents. Most of them likely bought in after ResCap filed for bankruptcy, a source said.

Ally, the black sheep of the auto-related bailouts, still owes taxpayers $11.5 billion of the $17.2 billion it took as a bailout.

In May, Ally announced a reorganization of ResCap and is asking the unsecured creditors to accept a haircut and forgo future claims.

But, three sources said, it has become clear Ally plans to buy back any unsold ResCap assets — and in the process pick up $1.7 billion in tax benefits, plus more.

The move by the unsecured creditors for a fatter payout is based, in part, on the tax benefit that they feel should be shared with creditors.

Ally, worth more than $10 billion, is likely to sell itself or go public once it completes the restructuring.

ResCap, King Street, Lone Star, and Moore Capital declined to comment. Treasury, Canyon Capital and Redwood Capital did not return calls.