Warren Buffett isn’t on board with Ally’s $2.1 billion offer to settle claims tied to its bankrupt mortgage unit, ResCap.
Buffett’s Berkshire Hathaway yesterday filed a motion asking the bankruptcy court to make public a report by a special examiner so that creditors can determine whether the sweetened proposal is fair.
The unsealing of the report — which probes Ally’s dealing with its mortgage subsidiary — could upend the case.
Judge Martin Glenn has kept the examiner’s report under seal to keep the pressure on Ally to reach a settlement with ResCap’s creditors.
Ally has agreed to nearly triple its contribution to ResCap’s bankruptcy to $2.1 billion, up from $750 million.
All of Rescap’s creditors have signed on to the deal except for a group of junior secured bondholders led by Buffett.
Berkshire Hathaway owns about 40 percent of $800 million in junior secured bonds, and it alone filed the motion to unseal the report.
“They [the rest of the creditor group] don’t care about seeing the examiner’s report,” one source said. “It doesn’t affect how much they will get paid.”
Under the current proposal, the Buffett-led group will get face value for their bonds, but they want to collect another $100 million in interest for the year ResCap has been in bankruptcy.
Unsecured creditors — including hedge fund manager John Paulson — have been pushing Ally to contribute more to the ResCap bankruptcy, saying it is responsible for its subsidiary’s losses. Paulson’s creditor group is settling for roughly 35 cents on the dollar.
If the special examiner’s report is made public, as Buffett wants, all the settlements might be tossed.
The court spent $80 million to fund the examiner’s report, and the judge will hold a June 12 hearing on whether to unseal it.
“While Berkshire applauds a bankruptcy process that brings parties together in settlement rather than protracted litigation, a process that does not make available to parties in interest an objective analysis of the issues to be settled undermines the transparency of the bankruptcy process,” Berkshire said in a court filing.
Judge Glenn has scheduled a June 26 hearing to approve the existing settlements.
It is possible he could approve them over Buffett’s objection, though that is not an easy case to make.
“If Buffett votes no, it’s back to the drawing board,” the source close to the situation said.