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Washington Mutual, Nortel, Colonial BancGroup, Property Stays: Bankruptcy
Washington Mutual Inc.’s bankruptcy examiner filed his preliminary report yesterday and won permission from the judge to extend the current Oct. 8 deadline for submitting his final report.
Joshua Hochberg, the examiner, said he will file his report on Nov. 1, when the plan confirmation hearing is currently on the court’s schedule.
Hochberg, a former head of the Justice Department fraud unit and now a lawyer with McKenna Long & Aldridge LLP, was designated by the bankruptcy judge in late July to evaluate the merits of a proposed settlement with the Federal Deposit Insurance Corp. and JPMorgan Chase & Co. The settlement is the foundation for WaMu’s proposed Chapter 11 plan.
Hochberg’s preliminary report yesterday gave no conclusions. Instead, Hochberg outlined the areas he’s investigating, beginning with the question of whether New York- based JPMorgan “intentionally injured” WaMu so it could purchase the bank subsidiary at a lower price.
Hochberg said he spent about $1.7 million in August working on the report. Hochberg is also looking into whether JPMorgan intentionally interfered with possible purchases of the bank by other buyers.
Other topics of the investigation include ownership of $4 billion in deposit accounts at the bank and whether the holding company has any claims for $6.5 billion in capital contributions made to the bank from December 2007 to September 2008.
Hochberg also will look into the question of who should end up with billions of dollars in tax refunds and whether trust preferred securities were properly exchanged for equity.
WaMu’s plan would distribute more than $7 billion to creditors. To read about the settlement, click here for the May 24 Bloomberg bankruptcy report. Click here to read the May 18 Bloomberg bankruptcy report for a summary of WaMu’s plan.
Opponents of the plan include shareholders and bank bondholders, although their goals are at odds.
The WaMu holding company filed under Chapter 11 in September 2008, one day after the bank subsidiary was taken over. The bank, which had been the sixth-largest depository and credit-card issuer in the U.S., was the largest bank failure in the country’s history. The holding company filed formal lists of assets and debt showing property with a total value of $4.49 billion against liabilities of $7.83 billion.
The holding company Chapter 11 case is In re Washington Mutual Inc., 08-12229, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Nortel Files Disclosure Without Recovery Estimate
Nortel Networks Inc., formerly North America’s largest communications equipment provider, filed a disclosure statement on Sept. 3 explaining the liquidating Chapter 11 plan filed July 12.
The draft disclosure statement as yet doesn’t tell creditors of each of the Nortel companies how much they can expect to recover. Likewise, there is no liquidation analysis as yet. The disclosure statement does contain a description of each asset sale and the business that remain to be sold.
Nortel filed the plan in July when its exclusive right to propose a plan was running out. Bankruptcy law doesn’t allow so- called exclusivity to extend beyond 18 months.
The plan is designed to pay secured creditors in full, to the extent of value in the underlying collateral. Remaining asset sale proceeds will go to unsecured creditors after creditors with higher priorities are fully paid. The disclosure statement says nothing is expected to be left for holders of subordinated claims. There is likewise nothing for stockholders.
The plan doesn’t call for substantive consolidation, so recoveries will vary depending on the Nortel company that owes a particular debt. An operating report filed last week shows Nortel had $885 million in cash as of July 31.
The Toronto-based Nortel companies filed for bankruptcy reorganization in January 2009 in the U.S., Canada and London. The companies reported $11.6 billion in consolidated assets and debt totaling $11.8 billion. Revenue was $9.7 billion in 2007. For the first nine months of 2008, sales were $6.8 billion.
The Chapter 11 case is In re Nortel Networks Inc., 09-10138, and the parent’s Chapter 15 case is In re Nortel Networks Corp., 09-10164, both in U.S. Bankruptcy Court, District of Delaware (Wilmington).
Colonial BancGroup Refund Dispute Still Not Resolved
Bank holding company Colonial BancGroup Inc. reached a partial compromise with the Federal Deposit Insurance Corp. over who is entitled to request tax refunds.
In an agreement approved Sept. 3 by the U.S. Bankruptcy Judge in Montgomery, Alabama, the Colonial holding company can file a tax return for 2009. The bankruptcy judge is also allowing the FDIC, in its role as receiver for the bank subsidiary, to request a refund for 2009 on behalf of the bank.
Any refunds must be placed in a special escrow account to await court determination about whether the refunds belong in the Chapter 11 case or in the receivership of the failed bank.
Colonial filed under Chapter 11 in August 2009 after the bank subsidiary was taken over by regulators. The Colonial holding company, based in Montgomery, listed assets of $45 million and debt of $380 million.
Colonial provided loans to mortgage loan originators to tide them over until mortgages could be packaged and sold to investors in securitizations. The holding company was being investigated with regard to accounting practices and the warehouse loan operation.
The case is In re Colonial BancGroup Inc, 09-32303, U.S. Bankruptcy Court, Middle District of Alabama (Montgomery).
Advance Sheets
Stays Required When Jointly Owned Property is Sold
When a bankruptcy judge approves the sale of co-owned property, the non-bankrupt owner must obtain a stay pending appeal. Otherwise the appeal will be dismissed, the U.S. Court of Appeals in Cincinnati ruled on Sept. 3.
The case involved nursing homes partly owned by a company in Chapter 11 under a form of ownership known as tenants in common. The co-owners, or tenants in common, were creditors. They appealed after the bankruptcy judge authorized sale of both the bankrupt company’s interest and the interest of the tenants in common. The bankruptcy appellate panel had affirmed.
The Sixth Circuit in Cincinnati, which upheld the lower courts, was dealing with Section 363(m) of the Bankruptcy Code which says that a sale of a bankrupt’s property can’t be challenged on appeal unless the order authorizing the sale is stayed pending appeal. The co-owners sought but were refused a stay pending appeal.
The circuit court found no reason why the requirement for a stay should apply only to cases where the bankrupt has full ownership. If 363(m) doesn’t apply, the appeals court said, it is “unlikely any purchaser would agree to the sale of co-owned property.”
The case is Official Creditors’ Committee v. Anderson Senior Living Property LLC (In re Nashville Senior Living LLC), 09-5812, U.S. Court of Appeals for the Sixth Circuit (Cincinnati).
To contact the reporter on this story: Bill Rochelle in New York at wrochelle@bloomberg.net.
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