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Residential Capital LLC is suing a group of junior bondholders to block them from wresting control of the subprime mortgage lender's bankruptcy case, Dow Jones Newswires reported yesterday. In a lawsuit filed on Friday evening in bankruptcy court, ResCap sued the bondholder group—dubbed the ad hoc group of junior secured noteholders—asking a judge to reject their claims on some of lender's assets securing the bonds. Lawyers for ResCap, a subsidiary of government-owned lender Ally Financial Inc., say that the bondholders are attempting to take over the chapter 11 case by manufacturing an "oversecured" position that would entitle them to hundreds of millions of dollars in interest payments. At issue is the bondholders' claim that they're owed $2.2 billion in principal and interest, which includes so-called post-petition interest accruing at about $250 million a year. ResCap's lawyers, however, said that the value of the collateral securing the bonds is only $1.5 billion. If so, that means the bondholders are under-secured and thus not entitled to interest payments.
http://www.foxbusiness.com/news/2013/05/06/rescap-sues-bondholders-over…

In related news, Residential Capital LLC Chief Executive Thomas Marano has resigned as the mortgage subsidiary of auto lender Ally Financial Inc. works its way out of bankruptcy, Reuters reported yesterday. Marano, who joined ResCap in 2008, will remain as a member of the board. Marano spent more than 25 years at now-defunct investment bank Bear Stearns & Co., where he was the global head of mortgage and asset-backed securities. Marano was managing director at Cerberus Capital Management before moving to ResCap. ResCap filed for bankruptcy in May 2012 to protect its parent from mortgage liabilities that threatened to swamp the company. Ally is 74 percent-owned by the U.S. government after a series of bailouts.
http://www.reuters.com/article/2013/05/06/rescap-ceo-resignation-idUSL3…

Bankruptcy Judge Robert E. Gerber has rejected a bid by the environmental trust created as part of General Motors' bankruptcy for more money to oversee the cleanup of hazardous waste left behind at dozens of former GM manufacturing sites, Dow Jones Daily Bankruptcy Review reported today. Judge Gerber on Wednesday denied the trust's request for $13.5 million that it claimed the "old" GM promised it as part of a settlement in the bankruptcy case.

As of next year, former Dewey & LeBoeuf chairman Steven Davis—faulted by many both inside and outside the firm as the chief culprit in its collapse—is to begin chipping away at the $511,145 he has agreed to give the Dewey estate to help satisfy creditors under a broader settlement that protects him against potential mismanagement claims, American Lawyer Daily reported today. Unlike more than 500 other former partners who were required to make payments to the defunct firm’s estate by early April in exchange for a release from Dewey-related liability, Davis has considerably more time to meet his obligations. Starting on March 22, 2014, court filings show, he must pay the estate a sum equal to 8 percent of his annual earnings each year for the next six years. Any outstanding balance will accrue interest at a rate of 9 percent annually. Once that March 2019 payment is made, though, whatever debt Davis still owes will be wiped away, according to a promissory note filed in bankruptcy court on April 22 as part of the proposed settlement between Davis, the Dewey estate, and XL Specialty Insurance. For its part, XL, which issued Dewey’s $25 million management liability policy, has pledged to pay the estate the $19 million not yet spent covering legal defense costs. XL has 10 days from when the settlement, which requires court approval, becomes final to make its payment to the estate.

The Supreme Court declined yesterday to hear a challenge to the post-bankruptcy reorganization of Charter Communications Inc., Reuters reported yesterday. Law Debenture Trust Co. of New York and R2 Investments objected when the No. 4 U.S. cable television operator filed for chapter 11 protection in March 2009, emerging in November of that year with its debts trimmed by $8 billion, or 40 percent. The bankruptcy was viewed as a major setback for Microsoft co-founder Paul Allen, a major investor. The objectors sued Charter, its affiliates and Allen himself because they said that they were left out of the reorganization negotiations between the company, Allen and other key investors. LDT was a trustee for holders of $479 million in bonds, while R2 was a stockholder. LDT was told it could recoup 32.7 percent of its claims, while R2 would receive nothing, according to court papers.

Patriot Coal Corp., the bankrupt mining company, reached a settlement resolving how it will reduce benefits for nonunion retirees, Bloomberg News reported yesterday. Patriot will pay $4 million into a plan administered by a trustee to pay benefits for nonunion workers, Brian Resnick, a lawyer for Patriot, said in court yesterday. The payment would consist of $250,000 in cash plus stock in a reorganized company, he said. Life insurance will be capped at $30,000 and current benefits will stay in effect until July 31 under the settlement.

The former chairman of Dewey & LeBoeuf has agreed to pay more than half a million dollars in a proposed settlement with Dewey's trustee and insurer to resolve claims that bad management led to the law firm's demise, Reuters reported yesterday. Former Dewey Chairman Steve Davis has agreed to pay $511,145 to settle claims that he mismanaged Dewey & LeBoeuf, which last May became the largest law firm in U.S. history to file for chapter 11 bankruptcy. XL Specialty Insurance Co, which issued Dewey's management liability insurance policy, has agreed to pay $19 million in the proposed settlement, according to court documents. If the settlement is approved, Davis would pay less than other former Dewey partners to be released from claims related to the firm's demise.

Jon Corzine was sued yesterday by the bankruptcy trustee liquidating MF Global Holdings Ltd., who accused the former chief executive of negligently pursuing a high-risk business strategy that culminated in the commodities brokerage's destruction, Reuters reported yesterday. The trustee, Louis Freeh, said in the lawsuit that Corzine and two top deputies overhauled MF Global's business without addressing "systemic weaknesses" in oversight and monitoring. Freeh said that the officials breached their fiduciary duties to shareholders and failed to act in good faith, wiping out more than $1 billion in value by the time of MF Global's Oct. 31, 2011, bankruptcy.

For more on navigating the line between fiduciary duty to shareholders and maintaining a failing business, make sure to pick up a copy of ABI’s The Depths of Deepening Insolvency: Damage Exposure for Officers, Directors and Others from the ABI Bookstore. Click here for more information and to purchase.

Eastman Kodak Co. said that it has reached a settlement with Kyocera Corp. in the companies' ongoing patent dispute, Dow Jones Daily Bankruptcy Review reported today. In a court filing yesterday, Kodak said that Kyocera will drop its $80 million claim against Kodak, which will receive a payment from Kyocera for about $5 million. The two sides will drop pending patent litigation against one another, and they have agreed not to pursue any further patent fights against the other until at least three years after Kodak has exited chapter 11.

Unsecured creditors have denounced Reader's Digest Association Inc.'s chapter 11 exit proposal, which offers them less than a tenth of a percent of what the publisher owes them, Dow Jones Daily Bankruptcy Review reported today. Lawyers for the official committee representing Reader's Digest trade suppliers and other unsecured creditors say they want more time to negotiate for an improved recovery in the bankruptcy case, which began in February.

The U.S. Department of Energy said yesterday that it has taken $21 million out of a reserve account set up as part of a loan to luxury plug-in car maker Fisker Automotive Inc. in anticipation of a default on a payment the company owes on a federal loan, the Wall Street Journal reported today. The Energy Department said that it "recouped the company's approximately $21 million reserve account—funds that came from the company's sales and investors, not our loan—and will apply those funds to the loan." Fisker's chief executive, Tony Posawatz, said in March that the payment on the $192 million the company borrowed under a federal advanced technology vehicle program was due Monday. Fisker's fate is uncertain. The Anaheim, Calif., company has said that it is trying to find a way to continue operating through a new owner, which would require a resolution with the U.S. government. Fisker has hired bankruptcy attorneys Kirkland & Ellis LLP.