A group of MF Global Holdings Ltd. creditors proposed a liquidation plan that would pay as much as 41.5 cents on the dollar for unsecured claims after the company reached key settlements last month with affiliates.
Citigroup Global Markets Inc., Blue Mountain Timberline Ltd., Cyrus Capital Partners LP, Deutsche Bank Securities Inc., Silver Point Capital LP and Waterstone Capital Management LP are among the plan’s backers, according to a filing yesterday in U.S. Bankruptcy Court in Manhattan. The creditors said they hold about 65 percent of certain MF Global loans and bonds.
“The plan proponents have proposed the plan to facilitate the prompt and efficient conclusion of the Chapter 11 cases,” they said in the accompanying disclosure statement.
MF Global filed the eighth-largest U.S. bankruptcy on Oct. 31, 2011, after getting margin calls and bank demands for money following its investment in the debt of troubled European economies. The company, which was headed by former New Jersey Governor Jon Corzine, listed assets of $41 billion and debt of $39.7 billion in its Chapter 11 filing.
The creditors, an unofficial group, estimated that the parent’s payout to unsecured claim holders would be 11.5 cents to 41.5 cents on the dollar under their plan, from assets of $276 million to $994 million. The calculation was conservative as it didn’t include some money that might come in and the creditors lacked access to all necessary information, they said.
Kevin Starke, an analyst at CRT Capital Group LLC, said he was puzzled by the group’s proposal. Instead of filing a plan, the hedge funds could have sold their bonds at current prices of 60 cents to 65 cents on the dollar, far exceeding the high end of their estimated recovery, he said in an e-mail.
“Perhaps this is an expression of impatience with the lack of disclosure and progress in the Chapter 11 case,” Starke wrote in a note to clients of CRT, which trades distressed debt. “Unless the plan proponent group’s estimates are perceived to be sandbagged, they are likely to disappoint the rest of the market.”
Lehman Brothers Holdings Inc.’s liquidation, the largest in U.S. history, speeded up after two creditor groups, including Paulson & Co. and Goldman Sachs Group Inc., filed rival plans.The defunct investment bank has now paid creditors half of the $65 billion it aims to raise.
The MF Global creditors supporting the plan filed yesterday hold about $788 million of the $1.2 billion of the company’s loans outstanding, and $647 million of its $1 billion in notes, according to the disclosure statement. A hearing on the statement is set for Feb. 14.
Professional fees and expenses are eroding the assets left for MF Global creditors, according to the group’s filings. Bankruptcy lawyers and advisers have put in bills for $48.7 million, of which about $27.2 million was unpaid on Nov. 30. The hedge funds’ plan, if approved, would allow the administrator “any and all reasonable fees, costs and expenses.”
Louis Freeh, the former Federal Bureau of Investigation director serving as MF Global’s trustee, has been unwinding the company under Chapter 11 of the U.S. Bankruptcy Code in an effort to repay creditors.
James Giddens is separately liquidating the brokerage, MF Global Inc., to repay customers under the Securities Investor Protection Act. Each trustee has conducted his own probe into how the company failed and they have sometimes been at odds over whether certain sums belong to creditors or brokerage customers.
Freeh and administrators of MF Global Holdings’ U.K. arm last month settled claims with Giddens. The agreements require approval from U.S. Bankruptcy Judge Martin Glenn.
“These settlements removed a series of substantial obstacles to the resolution of the debtors’ financial affairs,” the creditors said in the disclosure statement.
Lewis Goldberg, a spokesman for Freeh, didn’t immediately reply to an e-mail seeking comment on the liquidation plan.
Former customers of the U.K. arm will get about 60 percent of their money returned after the settlement, its administrators said. Unsecured creditors are set to receive a payment of about 20 percent of the value of their claims following the agreement.
Giddens has paid the U.S.-based brokerage’s U.S. and foreign customers about $4.9 billion since it failed. Excluding $500 million from the proposed U.K. accord, he had $1.2 billion in hand, out of $1.4 billion in remaining assets, according to data through Oct. 31.
Commodity customers shouldn’t expect to get paid in full unless Giddens wins key legal battles, he said in December.
The case is In re MF Global Holdings Ltd., 11-15059, U.S. Bankruptcy Court, Southern District of New York (Manhattan).