Before Residential Capital LLC, the nation’s fifth largest mortgage servicer, proved that it could be done, no other regulated financial services company had kept its core business going during bankruptcy. Usually the threat of insolvency alone is enough to cause customers to flee and creditors to claim collateral. Assets go for pennies on the dollar in fire-sale liquidations.
By the time ResCap filed for Chapter 11 in May 2012, however, a team at Morrison & Foerster led by restructuring chair Gary Lee had been working for a year to ensure that none of those destabilizing events would occur. ResCap’s creditors included thousands of underwater borrowers, investors in ResCap–sponsored residential mortgage–backed securities (RMBS), bondholders in the holding company and securitization trusts. Many had already sued ResCap and its parent, Ally Financial Inc.
