An auction of Ally Financial's Residential Capital has advanced into the second round, with some would-be buyers circling the assets, but a sale of the mortgage lender faces hurdles, sources familiar with the matter said.
The list of potential bidders includes private equity firm Centerbridge Partners, insurer MetLife Inc and specialty asset management firm Private National Mortgage Acceptance Co (PennyMac), which is backed by money manager BlackRock Inc , the sources said.
But there is no guarantee any of these firms will actually put in bids.
Private equity firm Blackstone Group , which in March was said to be looking at ResCap, is no longer seriously pursuing the mortgage lender, said another source familiar with the matter.
The auction includes bidders who want only parts of ResCap -- legacy loan assets, mortgage servicing and origination -- although the sellers would prefer to sell ResCap in its entirety, one of the sources said.
Ally, formerly known as GMAC Inc, hopes to close on a deal by the end of the year, the sources said. The company is majority-owned by the U.S. government.
Ally Financial continues to explore strategic alternatives for its mortgage operation with the goal of reducing risk and preserving value, it said in a statement. We are evaluating all options thoughtfully, while defining a viable long term strategy. There is nothing more to announce at this time.
MetLife, Blackstone, BlackRock and PennyMac declined to comment. Centerbridge was not immediately available for comment. The sources are anonymous because the sale process is private.
A sale of ResCap is an important part of Ally's turnaround, one of the largest U.S. car loan companies. Home loans fueled the lender's growth earlier this decade, but then triggered billions of dollars of losses amid the financial crisis.
The U.S. government injected more than $17 billion into Ally and holds a 56.3 percent stake as a result. Private equity firm Cerberus Capital Management LP owns 14.9 percent of GMAC, while General Motors Co owns 6.7 percent.
Ally has hired Goldman Sachs Group Inc and Citigroup Inc to advise on a range of issues, including strategic alternatives for the mortgage business and repayment of taxpayer funds.
In April, ResCap agreed to sell European mortgage assets and businesses to affiliates of hedge fund and private equity firm Fortress Investment Group .
Ally wrote down its mortgage assets late last year in an effort to contain more losses stemming from bad loans at ResCap and make the assets tempting to potential buyers.
But a sale of ResCap faces issues. A buyer would have to come up with capital to not only buy the business, but also to fund it going forward. An added complication comes from potential liabilities from warranties about underwriting standards made to Fannie Mae and Freddie Mac.
An improvement in results at Ally may also reduce pressure on the lender to dispose of the mortgage unit if the price is not good enough.
In May, Ally posted its first profit since the fourth quarter of 2008. ResCap made a net profit of $110 million in the first quarter. Chief Executive Michael Carpenter said at the time a potential sale of ResCap depends on market opportunities.
ResCap's book value, stripping out intangible assets, was $426 million at the end of March, according to regulatory filings. Ally is also one of the country's largest mortgage servicers. Mortgage servicing rights had a book value of $3.5 billion as of March 31.
Last week, GM said it would buy auto finance company AmeriCredit Corp for $3.5 billion in a cash deal, giving it an in-house lending arm for the first time since it sold a controlling stake in Ally in 2006.
Before buying AmeriCredit, GM weighed the option of taking back the auto finance portion of Ally, which provided financing for about 30 percent of GM's U.S. retail customers in the first quarter.
(Reporting by Paritosh Bansal and Megan Davies; editing by Andre Grenon and Matthew Lewis)