Market Overview

Berkshire Hathaway Wants ResCap's Mortgage and Loan Portfolio


Residential Capital (ResCap) has received an offer from Warren Buffett's company Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B), to buy their mortgage division and loan portfolio. Berkshire Hathaway is a bondholder of ResCap.

ResCap is a former auto lending arm of General Motors (NYSE: GM) and is a subsidiary of Ally Financial. Res Cap describes itself as "a real estate finance company focused on the residential real estate market. The provide services in origination and servicing of mortgage loans through their securitization on the secondary market".

They are filing for Chapter 11 bankruptcy, and ResCap is presently conducting business as usual with its subsidiaries.

Berkshire is in competition with Fortress Investment Group and Ally for the portfolio. Fortress Investment Group is a manager for hedge funds, real estate related investments and debt securities. Thus far, Berkshire has the best offer. Last week, Berkshire stated that they wanted an independent examiner in the ResCap bankruptcy case.

According to Bloomberg, Berkshire has offered to pay the same amount as Fortress for the mortgage unit, but would cut the cost of any break-up fees and not seek reimbursement for expenses. Ted Weschler said, "Berkshire holds more than $900 million of ResCap’s junior secured bonds. Berkshire, which owns the bonds directly and through affiliates, bought the debt more than two years ago".

The loan portfolio that Ally wants has "potential mortgage-related lawsuits." If there is ResCap bankruptcy and reorganization plan to resolve the potential lawsuits, Ally will pay $1.6 billion. If the sale closes without the plan, Ally will pay $1.4 billion. Berkshire counter-offered $1.45 billion.

Berkshire has wanted to buy ResCap even before it filed for bankruptcy. The company even offered to be the initial bidder or "stalking horse" for ResCap. Ally declined the offer, basing its decision on the possibility of better protection from future liabilities in the event Ally filed for bankruptcy and sold ResCap after.

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