Friday, 30 September 2016
Last updated 16 min ago
Mar 27 2012 | 11:08am ET
Elliott Management has thrown its weight against a plan that would see Fortress Investment Group buy Ally Financial's mortgage business.
The New York-based hedge fund, which owns 2.3% of the former GMAC Financial, isn't opposed to Fortress acquiring the assets, per se. But it objects to Ally's plan to sell the unit out of bankruptcy to the alternative investments giant, Reuters reports.
In a letter to Ally's board of directors last week, Elliott warned that a bankruptcy filing for the mortgage unit, Residential Capital, would lead to a long legal battle and make an initial public offering for Ally "nearly impossible" for years to come.
"We believe the board greatly overestimates its chances of successfully managing a clean and efficient process in bankruptcy," Elliott wrote. "A large, complex bankruptcy with multitudes of contentious litigation would foreclose the possibility of an IPO or sale of the assets or equity of Ally for at least two years."
In particular, Elliott questioned Ally's claims that it and ResCap are separate entities, predicting that ResCap creditors would go after Ally assets in a bankruptcy process.
Instead of placing ResCap into bankruptcy, Elliott said, Ally should seek an out-of-court debt exchange and the sale of ResCap's assets to a financial institution.
Talks between Ally and Fortress are ongoing. New York-based Fortress could pay more than $1 billion for the ResCap assets it wants, and might merge them into its Nationstar Mortgage Holdings business.