ResCap misses bond payment to investors
ResCap, the troubled mortgage unit owned by Ally Financial, missed an interest payment on its debt, according to a financial filing Tuesday.
The semi-annual payment came due Tuesday and relates to $1.75 billion in notes that will ultimately mature in 2013. Those notes bear a 6.5% coupon. Ally said in the filing that $473 million in principal is outstanding.
According to the contract on the debt, ResCap would not be considered in default until the payment stands delinquent for 30 days.
In January, Ally CEO Michael Carpenter said he wanted to resolve the struggling mortgage unit by the end of the year.
It's been long rumored ResCap would be placed into bankruptcy, as litigation expenses tied to subprime lending and mortgage bonds overwhelmed it.
According to Fitch Ratings, Ally could continue to amend and renew its secured debt facilities with ResCap as they come due while providing additional financial support to ResCap to pay off the upcoming unsecured debt maturities. This may prove to be too costly as Ally's own $12 billion of unsecured debt comes due in 2012.
The recent bond-payment miss indicates Ally may no longer wishes to provide support to ResCap. This would support a move to bankruptcy, Fitch said.
There are further complications, however, as missing a bond payment doesn't necessarily mean investors won't hold recourse to the debt.
"While Ally's creditors should benefit from the severing of all ties with ResCap in the long term, we note there is the potential for litigation in the near term, if ResCap's creditors challenge the legal separateness of Ally and ResCap," Fitch said.
Calls to Ally were not immediately returned.