When ResCap was hived off from GMAC it did so with the backing of $5 billion of 10-year subordinated debt. The goal was to pay back GMAC quickly, circa 2007 but in November 2005 ResCap identified that it would be able to pay back this debt in 2006. Some $3.6 billion of domestic debt was still owed.
But there are rules around how ResCap can pay back this debt. It can only downstream 50% of the funds raised from senior debt to pay back this subordinated debt.
“Investors’ expectation were slightly inflated.
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