Feb. 17 (Bloomberg) -- Washington Mutual Inc. won court approval for a $7 billion reorganization plan that resolves some legal claims related to the biggest U.S. bank to fail.
Creditors may be paid the first chunk of money as early as March 8 once a deadline passes for shareholders to decide whether they will waive their right to sue over the collapse of WaMu’s former bank, said Fred Hodara, a lawyer for the creditors’ committee.
“It should be confirmed immediately so stakeholders can get a distribution,” U.S. Bankruptcy Judge Mary Walrath said today in Wilmington, Delaware. Walrath said she will sign a final order approving the plan after wording changes are submitted by company lawyers.
The approval followed a deal struck this week to allow common shareholders to split ownership of the only unit of WaMu that will emerge from bankruptcy, a reinsurance company valued at about $140 million. Even with the deal, shareholders will still lose more than other WaMu investors, Edgar Sargent, with the law firm Susman Godfrey LLP, said in court.
“Getting to a recovery for shareholders was not an easy process,” Florin Matache, a shareholder who estimates he lost about $10,000 on WaMu common stock purchased before the bankruptcy, said in an interview after the hearing. “I am not sure the struggle was worth it.”
Matache, a 34-year-old pharmacist from Roseville, California, said he tried to cut his losses after the Chapter 11 filing by buying WaMu securities that had dropped in value. Should the reinsurance company be worth $140 million, as WaMu financial advisers estimated, Matache expects to break even on his post-bankruptcy investments.
Bondholders, some of whom bought WaMu’s debt for pennies on the dollar after the company’s 2008 collapse and bankruptcy filing, will be repaid in full plus interest, according to court documents.
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 had more than 2,200 branches and $188 billion in deposits.
Creditors will collect more than $7 billion, mainly from about $4 billion in cash that WaMu had on deposit with the banking unit bought by JPMorgan and from tax refunds. The cash and the refunds were split with JPMorgan and the Federal Deposit Insurance Corp. to settle a dispute about who owned the assets and who should be held responsible for WaMu’s collapse.
Today’s approval of WaMu’s plan came after a group of creditors known as the TPS Consortium, who hold securities that resemble preferred shares, agreed to switch their vote and support the proposal.
In return for their support, the group’s members will share stock in the reinsurance company that would exit bankruptcy under the plan. Those creditors and another group of investors who hold the same securities will share $18 million provided by JPMorgan.
The deal removed the last major objection to the plan, WaMu attorney Brian Rosen, with the law firm Weil, Gotshal & Manges LLP, said in court. He compared a small stack of objections for this version of the plan, the seventh, to the hundreds of written critiques of the previous plan.
“It was like the winner of the ‘Biggest Loser’ contest,” Rosen said, referring to the reality-television show in which obese people try to lose weight.
About 15.5 million common shares traded hands today, the highest volume since Dec. 13, and almost three times the 30-day moving average. The shares rose 7.6 percent to 4.5 cents in over-the-counter trading, according to information compiled by Bloomberg.
The bankruptcy case is In re Washington Mutual Inc., 08-12229, U.S. Bankruptcy Court, District of Delaware (Wilmington).
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