Washington Mutual Inc., the former owner of the biggest U.S. bank to fail, won permission to send its revised bankruptcy plan to creditors for a vote, setting up a repeat of a court fight the company lost in December.
U.S. Bankruptcy Judge Mary F. Walrath in Wilmington, Delaware, ruled today that the plan’s so-called disclosure statement contains enough information to allow the vote. Walrath ordered the company to add more details to the statement after hearing from creditors and shareholders who have fought over the plan for more than two years.
Walrath last year refused to approve WaMu’s plan to pay creditors more than $7 billion until the company and its backers agreed to make changes. The new version incorporates all of Walrath’s requests, supporters of the plan said in court.
“We do believe strongly in this plan of reorganization,” Fred Hodara, an attorney for the official committee of unsecured creditors, said in court. “We do believe it is critical that this disclosure statement go out now so we can stay on track.”
Attorneys for both sides declined to comment as they left the courtroom.
Wamu, based in Seattle, filed for bankruptcy on Sept. 26, 2008, the day after its banking unit was taken over by regulators and sold to JPMorgan Chase & Co. for $1.9 billion. Washington Mutual Bank was the biggest bank to fail in U.S. history, with more than 2,200 branches and $188 billion in deposits.
Walrath will consider the vote of creditors on May 2 when she is scheduled to hold a hearing on the plan.
Not all of the creditors who originally voted will be eligible to vote this time, Walrath ruled.
The company’s 5 percent bonds due in 2012 rose 2 percent to 111.25 cents on the dollar according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
Walrath has already approved the central feature of the bankruptcy plan, which is an agreement among WaMu’s biggest creditors, banking regulators and JPMorgan to split billions of dollars in tax refunds and cash.
After WaMu filed for bankruptcy in 2008, hedge funds bought debt securities, some for pennies on the dollar, issued by the bank holding company and its former banking unit, Washington Mutual Bank. The hedge funds then battled each other, shareholders, creditors, regulators and JPMorgan, over how to divide the company’s assets.
Cash and Refunds
WaMu ended most of the arguments last year by agreeing to split about $4 billion in cash and tax refunds of as much as $5.8 billion among some of its creditors, including the hedge funds, JPMorgan and the Federal Deposit Insurance Corp.
The hearing in May will involve groups of creditors and shareholders who have long opposed the plan. They have filed objections to the revised plan that are similar to the complaints they made in December. Walrath did not rule on some of the issues that creditors and shareholders have fought over.
Noteholders are battling each other over how much interest WaMu’s senior creditors, who will be paid in full, will receive.
A group of investors who own a specialized form of debt called trust preferred securities are in dispute with senior creditors over whether the securities became worthless when WaMu filed bankruptcy.
The arguments over interest and the securities, which involves details of bankruptcy law, could be worth more than $1 billion, Seth Ard, an attorney representing WaMu shareholders, said in court.
Walrath ordered WaMu to add an analysis of how the different interest rates would affect creditors and to include an estimate of how much some company assets, including real estate, are worth.
The company must also begin mediation with a group of creditors who hold litigation-tracking warrants related to a lawsuit.
Shareholders oppose WaMu’s plan because it pays them nothing. They argue that WaMu’s bank should never have been seized by regulators and sold to JPMorgan. Shareholders claim in court records that a lawsuit over the seizure and sale would win enough money to pay all of WaMu’s debts and leave something for them.
The case is In re Washington Mutual Inc., 08-12229, U.S. Bankruptcy Court, District of Delaware (Wilmington).