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General Electric placed its WMC Mortgage unit into Chapter 11 bankruptcy protection as the inoperative subprime mortgage originator has nearly $1.7 billion in legal settlements agreed to or pending.
“WMC, a discontinued U.S. mortgage subsidiary of GE Capital, commenced a case under Chapter 11 of the U.S. Bankruptcy Code in Delaware federal bankruptcy court to resolve its remaining liabilities in an efficient and equitable manner,” a GE spokesperson said in a statement. “This filing is another important step in the derisking of GE Capital. GE and GE Capital are not part of the filing and the case has no adverse impact on our business operations.”
It was the pending result from a case brought by TMI Trust Co. in the U.S. District Court for the District of Connecticut that was the catalyst for GE’s initial announcement last May that it was considering putting WMC into bankruptcy.
TMI alleged it had losses of $425 million on $800 million of mortgage loans. Closing arguments in the trial were held last June, but subsequent to that TMI and WMC reached a tentative settlement of $198 million, the bankruptcy petition said.
In an April 5 court filing, TMI and WMC asked for an additional stay of a potential decision from the trial by Judge Charles Haight Jr., until June 4 to finalize the settlement agreement.
“Since the discontinuation of its mortgage origination business approximately 12 years ago, WMC has made good-faith efforts to resolve all of its liabilities,” the bankruptcy filing said. “Despite exhaustive efforts to resolve its liabilities, it has become clear that there may be a number of disputed, contingent and unliquidated claims that parties might yet assert.”
“In addition, the proposed settlement of the TMI Litigation is a key aspect of this chapter 11 case. Given WMC’s limited cash on hand and its inability to receive ongoing financial support from GECUSH to resolve these claims outside the confines of chapter 11 and the protections and finality it affords, WMC has determined that it is in its best interest to commence this chapter 11 case.”
GECUSH, whose formal name is GE Capital US Holdings, had been making capital contributions to WMC since December 2015. It is providing debtor-in-position financing of up to $25 million.
The April 23 filing came approximately 11 days following GE finalizing a $1.5 billion settlement with the Department of Justice over claims it misrepresented the quality of loans securing residential mortgage-backed securities.
There are 13 unsecured creditors listed in the filing. The only assets WMC has is $175,000 in cash, the filing said.
In addition to the DOJ settlement, WMC already has paid out another $1.5 billion to resolve legal claims, according to the filing.