Bloomberg News is reporting that Ally Financial is in talks with Fortress Investment Group to sell some assets from Ally's mortgage unit. According to what Bloomberg calls "three people with direct knowledge of the matter," Fortress would buy parts of the Residential Capital (ResCap) unit, including some of its servicing business as part of a ResCap bankruptcy filing.
Ally is facing a number of financing deadlines in March, and a bankruptcy filing has been expected, but the pending deal with Fortress may delay the filing. The company has allegedly been lining up about $2 billion to fund operations subsequent to the filing. Bloomberg says that investors holding at least $800 million in ResCap debt, including Paulson & Co. and Appaloosa Management LP, had joined together to oppose a bankruptcy filing and have since signed confidentiality agreements with ResCap to get inside information on the sales process. Bloomberg said Fortress may pay more than $1 billion for the deal but it appears that it may only be bidding on a small portion of the company.
ResCap had assets valued at $16.8 billion at the end of 2011 including servicing rights valued at $1.2 billion and is one of the larger servicers of GSE backed mortgages. Ally Bank, which changed its name from GMAC in May 2009, has received government bailout funds totaling $17.2 billion. The U.S. Treasury Department holds a 74 percent state in Ally's common stock and an additional $5.9 billion of preferred shares that must be converted into common stock by the end of 2016. Bloomberg quoted Chief Executive Officer Michael Carpenter as once predicting that an initial public offering could value the company at $30 billion but then saying last month that the IPO won't happen until there's progress on the mortgage business.
Fortress is a global investment manager with approximately $43.7 billion of assets under management. Its website said it specializes in asset-based investing in physical and financial assets ranging from real estate and capital assets to financial assets secured by diversified long-term cash flows. Among its assets is ownership of 77 percent of Nationstar Mortgage Holdings and Fortress could fold the Ally servicing operations into that company.
Bloomberg, which so far appears to be the only media outlet reporting the story, said Fortress is being vetted by Fannie Mae and Freddie Mac to ensure it can handle the servicing volume. Fortress apparently outbid companies such as Centerbridge Capital Partners LLC to enter into exclusive talks.
Ally was one of four companies that failed to pass all of the Federal Reserve's stress tests because its common capital ratio fell short of the required benchmarks in the Fed's stress scenario. Selling a portion of the ResCap assets may make it easier to meet the criteria when it resubmits its plan as it has said it will do.