Paulson, Hedge Funds Could Be Burned By Ally Mortgage Deal

Apr 29 2013 | 3:11pm ET

Ally Financial appears ready to move forward with the reorganization of its mortgage business—without the support of its hedge-fund creditors.

Residential Capital is reportedly close to a deal with some of its creditors that could cut out Paulson & Co., the New York Post reported. The lender last week offered to increase its payment to those creditors at mediation.

A deal could allow ResCap to file a reorganization plan in federal bankruptcy court by a May 7 deadline, and could allow Ally to distance itself from ResCap's troubles.

According to the Post, Ally does not believe it needs the approval of Paulson's creditor group to win the court's approval. Instead, it has been focused on creditors that include monoline insurers and mortgage-backed securities.

Paulson and Appaloosa Management in January urged Ally to back ResCap to ensure a full repayment of RecCap's debts, threatening litigation if it chose not to do so.

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