Warren Buffett locked horns again on Tuesday with ResCap, the bankrupt mortgage lender — pressing his case for a 100 percent recovery.
Buffett, as part of a group of secured junior bondholders, wants $2.23 billion in principal plus some $300 million in interest to cover the 18 months Residential Capital has been in Chapter 11.
ResCap is offering, as part of its plan of reorganization, no interest payout and a $387 million discount on principal.
Buffett’s Berkshire Hathaway owns more than 40 percent of the bonds and therefore controls the committee.
After failing to reach a settlement earlier in the case, Buffett’s bondholders squared off Tuesday against ResCap — and practically all other creditors — in Manhattan Bankruptcy Court at the start of a two-week trial.
If Judge Martin Glenn rules against Buffett, the Oracle of Omaha may not go quietly.
The bonds hold a claim against ResCap parent Ally Financial — and Buffett’s bondholders may not release Ally from their grip, a source close to the situation said.
Such a claim could make it more difficult for Ally to launch an IPO to help pay back $11 billion in government loans, the source added.
The Buffett bondholder group, in its opening argument, insisted ResCap, through asset sales, had more money, perhaps $1 billion, than it claims.
With the added cash, ResCap should pay them in full, they told Judge Glenn.
ResCap is accounting for $900 million in expenses, and the bondholders believe expenses should not be calculated.
Uncle Sam’s ride with Ally (formerly GMAC) has proved to be very bumpy.
The government in 2008 felt it needed to save the auto lender, believing if it collapsed it would hurt General Motors.
The move was controversial since arguably another lender could have moved in and provided the same car loans.
Ally continued to lose money and in May 2012 put ResCap in bankruptcy.
Now, 17 months later, Uncle Sam, which in February sold most of ResCap’s assets, is still trying to move ResCap through bankruptcy.
Buffett stands in the way.
Earlier in the bankruptcy, Buffett successfully fought to get a special examiner appointed to see if Ally should contribute more than the agreed $2.1 billion to the bankruptcy.