As ResCap’s Woes Continue, GMAC and Cerberus Provide $2 Billion Rescue

Troubled Residential Capital LLC, the mortgage lending unit of GMAC LLC, said in a regulatory filing with the Securities and Exchange Commission Tuesday that it needs roughly $2 billion in cash before the end of June to stay in business — a number more than three times the company’s earlier estimates. Previously, the company had said it needed roughly $600 million to satisfy its short-term liquidity needs. The troubled lender cited numerous “adverse conditions” behind its latest cash needs, saying that a plan to sell $1.3 billion in assets collapsed and that “adverse movement of hedge collateral” had hurt the company’s financial position. The disclosure makes ResCap the latest financial firm to see its hedging strategies head south — Lehman Brothers Holdings Inc. (LEH) has been facing speculation of similar problems, as well. News of a cash crunch anew at the former subprime lending giant sent both GMAC and investor parent Cerberus Capital Management, L.P., which controls 51 percent of GMAC, scrambling to shore up the firm’s weakening cash position — to the tune of nearly $3 billion, including the short-term capital the lender said is needed to keep the doors open. To help with cash needs, ResCap said in its SEC filing that it would draw $450 million this week from an amended credit facility provided to it by GMAC and secured by some of the company’s mortgage servicing rights; GMAC recently increased its available credit under that facility from $750 million to $1.2 billion, Rescap said. GMAC will also pump an additional $750 million to ResCap after agreeing to purchase RFC’s resort-finance business and buying the company’s mortgage servicing receivables. For its part, Cerberus will provide roughly $1.2 billion in additional capital, after agreeing to buy ResCap’s model-home assets as well as serving as backstop for an “orderly sale” of the company’s performing and non-performing mortgages and associated mortgage-backed securities. Debt offer flounders ResCap said early Wednesday morning that it had extended a deadline for investors to exchange $14 billion in existing notes, so that the firm can ostensibly avoid heading for the bankruptcy heap; not encouraging, however, has been investors’ lackluster response to the offer, which for many would see them exchange current notes for debt with longer maturities and higher interest rates — but at the cost of receiving less than the face value of their current investment. The company said Wednesday that approximately 80 percent of notes expiring this year and next had been tendered as of Tuesday evening; investors with longer maturities have been less receptive to the offer, however, with the lender disclosing that only 63 percent of notes with a maturity later than 2010 had been tendered. Those numbers were little changed from levels reported in a separate SEC filing last month. The fly in the ointment, HW’s sources say, is a proposed $3.5 billion senior secured credit facility that ResCap is attempting to secure from parent GMAC — the SEC filing said that ResCap is still “in negotiations” on the facility. Without it, sources suggested, ResCap faces an uncertain future. “Investors are playing wait-and-see,” one source told Housing Wire Wednesday, a senior executive for a large private equity firm that asked not to be identified. That source suggested that the moves by Cerberus and GMAC signal that neither will likely let the troubled lender fall into bankruptcy, although a restructuring was likely in the offing in the very near future. ResCap has been a drag on GMAC’s earnings for well over a year, and posted a $859 million loss during the first quarter. Disclosure: The author held no positions in LEH when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.