There are a stunning number of creditor claims set forth in the report that the Examiner reviews and handicaps as to legal merit, after having conducted an exhaustive investigation. These creditor claims, if they prevailed, would have served to increase the size of the bankruptcy estate of ResCap for the benefit of ResCap's creditors and to the detriment of ResCap's parent, Ally. It was the threat posed by these creditor claims and the looming shadow cast by the Examiner's Report that led to the plan support agreement among Ally, ResCap and ResCap's principal creditors, in which Ally is to contribute $2.1 billion to the bankruptcy estate in exchange for a release of claims. This plan support agreement was recently approved by the ResCap bankruptcy court. A reorganization plan based upon this plan support agreement has yet to be filed.
But there are no bigger creditor claims considered in the Examiner's Report than the (i) piercing the corporate veil and (ii) substantive consolidation arguments alleged by ResCap's creditors. These are doomsday claims, as they would have potentially put Ally on the hook for all of ResCap's liabilities. It is hard to see how a plan could be confirmed based upon the plan support agreement that provides a $2.1 billion contribution by Ally if the Examiner had concluded that it was likely that these veil piercing or substantive consolidation creditor arguments would prevail. Such a conclusion could have put Ally on the hook for as much as $25 billion of potential claims, according to published estimates.
No worries for plan support agreement proponents, at least with respect to these doomsday claims, as the Examiner concludes at pps. 45-47 that it is unlikely that these doomsday claims would prevail. Moreover, a claims valuation scorecard is set forth by the Examiner, beginning at p. 51, which indicates that, on a present value basis, Ally's $2.1 billion consensual contribution is within the ballpark of what ResCap creditors might reasonably be expected to recoup by means of litigating its claims.
NB: this blog is not intended to be investment advice, and should not be relied upon by anyone to constitute investment advice. Investing is a tough game, and everyone must do and "own" their own work, because you will certainly own your investments.