Berkshire Hathaway declined to participate in Residential Capital’s pre-bankruptcy process to select a stalking-horse bidder for the sale of its assets, despite specifically being invited to do so, according to a court filing by the company.
As reported, ResCap filed for Chapter 11 on May 14 with agreements in hand to sell its mortgage-origination-and-servicing businesses to Fortress Investment Group’s Nationstar for about $2.3 billion, and sell its legacy portfolio, consisting mainly of mortgage loans and other residual financial assets, to its parent company, Ally, for $1.4 billion. Among other conditions, the Nationstar deal includes a breakup fee of $72 million, plus reimbursement of expenses of up to $10 million, if Nationstar is ultimately not the successful bidder for the assets.
As also reported, in an objection to the proposed procedures filed June 11, Berkshire offered to replace Nationstar and Ally as the stalking-horse bidder for the assets, saying it would agree to purchase the mortgage-origination-and-servicing businesses on the same terms as Nationstar, but with a breakup fee of only $24 million and no expense reimbursement, “representing an incremental benefit to the estates of nearly $60 million if there is additional bidding for the mortgage business at auction.” With respect to the loan portfolio, Berkshire said it would pay $1.45 billion, beating Ally’s purchase price by $50 million.
But responding to the objections to its proposed sale process filed by Berkshire and other parties in the case, ResCap said that its investment banker, Centerview Partners, contacted Berkshire in January to invite “Berkshire to participate in the sale process and potentially be a stalking-horse bidder in a Section 363 sale of ResCap’s servicing Platform.” According to the company’s June 14 filing with the Manhattan bankruptcy court, however, “Despite the invitation, Berkshire chose not to participate in any pre-petition stalking-horse bidding process.”
According to the company’s filing, Michael Carpenter, the CEO of Ally, met again with Berkshire in mid-April. Following that meeting, Berkshire investment manager Ted Weschler wrote in a letter to Ally dated May 3, “Neither ResCap entering into bankruptcy nor a sale of ResCap’s mortgage production platform is in the best interests of Ally, the US Treasury, Berkshire and other significant stakeholders in both Ally and ResCap.”
The company said, however, that Weschler proposed a transaction in that letter under which Berkshire would acquire 100% of Ally’s equity interest in ResCap for $1.
“At no time during these discussions did Berkshire approach the debtors or indicate to the debtors any interest in the stalking-horse process,” the company said. “Even after the debtors filed for bankruptcy, Berkshire never approached the debtors asking to be part of the bidding process.”
The filing continues, “Then, again without approaching the debtors, Berkshire filed its motion to appoint an examiner. Not even in advance of filing an objection to the sale procedures and making a bid on the purchased assets did Berkshire have even one conversation with the debtors or Centerview. Berkshire’s actions are atypical of parties interested in becoming a stalking horse.”
In contrast, the company said, “Nationstar has expended considerable resources throughout this process and comes before this court with a clear agenda.” The company added, however, that discussions remain “ongoing” with Nationstar regarding bid protections, even though it also said Nationstar’s stalking-horse offer “will likely remain the highest and best offer for the debtors’ servicing platform.”
As reported, a hearing is scheduled for June 18 on whether to approve the company’s bidding procedures, including the naming of Nationstar and Ally as stalking-horse bidders. – Alan Zimmerman