Ally Financial, what used to be known as the General Motors Acceptance Corporation, GMAC, before GM’s bankruptcy and bailout, itself received over $17 billion from the U.S. Treasury during the bailouts of 2009. On Tuesday the company said that it was looking into options on how to repay that money and comply with the Federal Reserves’ latest stress tests for financial institutions. Ally is 74% owned by Treasury and it is trying to buy back some taxpayer-owned stock and reach an agreement with the Fed on its capital structure (known as the “Comprehensive Capital Analysis and Review”) so it can offer stock in an IPO. Ally had originally planned on a 2011 IPO but having to resolve claims against its bankrupt Residential Capital mortgage unit delayed that. ResCap hopes to be out of bankruptcy by 2014.
More recently, in March the Fed said that Ally didn’t have enough capital, should there be another economic meltdown. Ally objected and they’re trying to come up with a plan that will get the Fed’s blessings.
In a filing with the SEC, Tuesday, Ally said that they are “exploring a number of alternatives in furtherance of repaying Treasury and supporting its Comprehensive Capital Analysis and Review resubmission to the Federal Reserve Board, including a possible primary issuance of common stock by Ally, and the use of available cash (and the proceeds of any stock issuance by Ally) to address Treasury’s mandatorily convertible preferred shares. No decision has been made to pursue any approach under consideration and the implementation of any such approach may require regulatory and other approvals.”
In a related matter, Ally won a small legal victory. In its role as conservator of Freddie Mac, the Federal Housing Finance Agency sued Ally, ResCap and affiliates alleging that there were false and misleading statements in documents concerning mortgage-backed securities that were bought by Freddie Mac. When ResCap filed for bankruptcy last year, the FHFA dropped them from the lawsuit but pursued it against Ally.
Ally responded by having ResCap sue the agency, claiming that to sue Ally and other non-bankrupt affiliates was a violation of bankruptcy’s automatic stay. The Bankruptcy Code in the U.S. automatically halts lawsuits against bankrupt companies.
A federal district court judge ruled that FHFA’s lawsuit against Ally could proceed and ResCap appealed, resulting in Tuesday’s ruling from the U.S. Court of Appeals that kicked it back to district court, instructing that judge that “automatic stay may apply” to non-bankrupt affiliates “in some limited circumstances”, that the stay would apply if the FHFA’s lawsuit would have “immediate adverse economic consequences” on ResCap, that the lower court should make “explicit findings” on the matter of if continuing the suit against non-bankrupt affiliates would have such consequences on ResCap.
What the lower court may do is not clear, particularly because things have changed since ResCap’s suit was filed. Since then the mortgage unit has reached a settlement with all of it’s creditors and has filed a reorganization plan under Ch. 11 of the bankruptcy code that is up for court approval next month. That plan involves Ally paying $2.1 billion to ResCap’s creditors.