WaMu Agrees With Shareholders and Creditors to End Bankruptcy Dispute

by San Antonio Attorney

In a statement given by two people who know about the proposal, Washington Mutual Inc. have reached a settlement with  its largest creditors along with the shareholders by offering them equity as debt payment once the company has come out from bankruptcy.

The deal consists of litigation trust worth $25 million for expenses in filing lawsuits to generate payments for shareholders. In exchange, the shareholders would drop allegations of insider trading against hedge funds that helped craft the company’s reorganization plan.

Washington Mutual shares increased in over-the-counter trading at most 79 percent to 7.4 cents.

Shareholders are one of the the last of the WaMu’s adversaries to its restructuring plan, which would provide over $7 billion payment to its note holders and creditors. How the equity will be divided by the common and preferred shareholders of the newly restructured company has not been concluded by the groups that agreed on the deal.

The deal would consist of the WaMu, court-appointed committee of WaMu’s equity holders, and the following four hedge funds that assisted in the current reorganization plan negotiation: Appaloosa Management LP, Aurelius Capital Management LP, Centerbridge Partners LP, and Owl Creek Asset Management LP.

There is still to final decision with regards to the specifics of the proposal.

The two parties have arranged that the note holders will give $100 million in exit financing to the new reorganization plan.

The Seattle based WaMu Inc. filed for Chapter 11 bankruptcy following the regulators’ take over and selling to JPMorgan Chase & Co. The bank has $188 billion in deposits and over 2,200 branches, and has been considered as the largest bank to go bankrupt in the U.S. history.

Shareholders were given consent by U.S. Bankruptcy Judge Mary Walrath to gather documents about their WaMu trades and question the hedge funds under oath.

All the evidence collected will be considered by the bankruptcy judge in deciding the approval or disapproval of WaMu’s reorganization plan.

Under WaMu’s proposal, it would dispense over $7 billion in tax refunds and cash and restructure a reinsurance company that has the authority to offset taxes on potential profits with deficits from the previous bank holding company.

WaMu and its creditors had continually disagreed that shareholders should not be given anything under the reorganization proposal. Under WaMu’s initial reorganization proposal, $4.13 billion owed to senior note holders and $1.67 billion owed to senior subordinated note holders are set to be completely repaid plus interest.

The case is In re Washington Mutual Inc., 08-12229, U.S. Bankruptcy Court, District of Delaware.

Details on Chapter 11 Bankruptcy can be found under the San Antonio Bankruptcy section of the website.

Leave a Comment

Previous post:

Next post: