Billionaire Warren Buffett's Berkshire wants to buy ResCap mortgage unit

NEW YORK: Billionaire investor Warren Buffett's Berkshire Hathaway Inc has offered to buy Residential Capital LLC's mortgage unit, according to court papers filed Monday.

In throwing its hat in the ring, Berkshire Hathaway Inc, Buffett's holding company, is seeking to replace Nationstar Mortgage Holdings, owned by Fortress Investment Group, as the initial bidder for the bankrupt company's mortgage servicing unit.

ResCap, the mortgage unit of Ally Financial, filed for bankruptcy in May with a plan to sell the unit to Nationstar for about $2.4 billion. Ally is the former in-house financing arm for General Motors Co, previously known as GMAC, and is not in bankruptcy.

Berkshire, a major ResCap creditor, also offered to serve as the stalking-horse bidder for a portfolio of loans that ResCap had planned to sell to Ally for approximately $1.4 billion.

The stalking-horse, or initial bidder, sets the minimum price, requiring other bidders at the auction to make higher counteroffers.
Warren Buffett tours the trade show floor during the Berkshire Hathaway Annual shareholders meeting in Omaha, May 5, 2012. REUTERS

Bankruptcy Judge Martin Glenn is scheduled to consider the sale procedures on June 18. The auction is set for September, and ResCap CEO Tom Marano told Reuters last week that other bidders are likely to emerge in the coming weeks.

In both cases, Berkshire said it would offer more attractive terms in papers filed in federal bankruptcy court in Manhattan.

Under a proposed deal with ResCap, Fortress would be entitled to a $72 million break-up fee and up to $10 million in expense reimbursement if it failed to win the auction. Berkshire offered to cut the break-up fee to $24 million and to eliminate the expense reimbursement.

Earlier Monday, the U.S. Trustee overseeing the case, Hope Davis, criticized the size of the break-up fee, saying in court papers that it could discourage other bidders from participating. The U.S. Trustee monitors bankruptcy cases to ensure compliance with bankruptcy laws.

Berkshire also topped the proposed bid from Ally, offering $1.45 billion, or $50 million more.

Before the bankruptcy filing, Berkshire made a last-minute offer to buy ResCap assets for $1 in return for taking on its liabilities, according to a source familiar with the situation, who was not authorized to speak publicly about the talks. Ally turned down the offer, the source said.

Spokeswomen for both Ally and ResCap declined to comment on the Berkshire filing. A spokesman for Fortress did not immediately return a request for comment after business hours Monday.

Losses at ResCap, once a major subprime lender, have wounded Ally in recent years. The bankruptcy and sale are intended to give Ally a way to shed its mortgage liabilities as part of an effort to repay U.S. taxpayers for a series of bailouts during the financial crisis. - Reuters