-- Ally Financial Inc. said Thursday it will pay $2.1 billion to resolve claims from creditors of its bankrupt mortgage unit, a move that should help the U.S. Treasury begin its exit.
The Detroit-based auto lender said last week it had reached a deal for its troubled mortgage unit Residential Capital LLC to complete its bankruptcy restructuring. It's $1.2 billion more than Ally had previously offered to settle the claims, a spokeswoman said.
Under the deal, Ally will pay $1.95 billion in cash to the ResCap bankruptcy estate, as well as the first $150 million from insurance proceeds. Ally will also receive $1.13 billion that is owed under existing credit facilities. The agreement and the plan still must be approved by a bankruptcy judge in New York, who has set a June 26 hearing on the issue.
The deal came after "months of nearly round the clock formal and informal negotiations," ResCap said in a court filing. ResCap has "long believed that a global settlement would be required to avoid drawn out litigation 'free for all' or 'nuclear war' among their major creditor groups."
Ally has agreed to make the payments no later than September.
"Reaching this comprehensive agreement enables Ally to turn the page on a tumultuous chapter in its history that was severely impacted by the issues in the mortgage industry," said Ally chairman and CEO Michael Carpenter. "Putting these issues behind us is in the best interest of our shareholders, employees and customers."
Ally will record a charge of $1.55 billion in the second quarter as a result of the agreement.
The move will likely allow the U.S. Treasury -- which holds a 74 percent stake in Detroit-based auto lender Ally as part of $17.2 billion in bailouts -- to begin to exit.
ResCap, the nation's fifth-largest mortgage servicer, filed for bankruptcy in May 2012. At the time of the bankruptcy, ResCap held 2.4 million U.S. residential loans with an outstanding principal of $374 billion.
Earlier this month, Carpenter rejected claims that Ally should be held responsible for ResCap creditor claims.
Earlier he said Ally had offered $750 million to resolve claims, which he called a "hostage payment" to "settle and move on."
The problems of ResCap forced the Treasury in 2011 to put a planned initial public offering of Ally on hold.
Ally had originally hoped that ResCap would have completed its bankruptcy restructuring by the end of 2012.
Ally has been selling off its international operations and is likely to use some of that cash to repay the Treasury.
At the time of ResCap's bankruptcy, Ally said it has invested $10.3 billion in ResCap since 2007 as it has struggled to free itself from its mortgage liabilities.
Ally has repaid $6.1 billion to the U.S. Treasury.
During the financial crisis, the Treasury tapped Ally -- formerly known as General Motors' in-house lender GMAC -- to provide financing for GM and Chrysler dealers and customers. That arrangement for Chrysler dealers expired on April 30.
GM has since supplemented its financing arrangements by buying AmeriCredit in 2010 and renaming it GM Financial. It also bought most of Ally's auto finance business in Europe and Latin America in a deal that closed last month.