Washington Mutual Reorganization Plan To Face Creditor Vote
WILMINGTON, Del. -- The stage is set for creditors to vote on bank holding company Washington Mutual Inc.'s latest reorganization plan and for a hearing next month on whether a Delaware bankruptcy judge should confirm the plan after she approved a document describing the plan Wednesday.
In approving the disclosure statement, Judge Mary Walrath rejected arguments that it does not contain enough information for creditors to make informed decisions when voting on whether to accept or reject the plan.
Walrath has rejected two previous reorganization plans from WaMu, most recently in September. A hearing on the latest plan is set Feb. 16.
As with earlier proposals, it is based on WMI, JPMorgan Chase and the Federal Deposit Insurance Corp. settling lawsuits they filed against one another after the collapse of Seattle-based Washington Mutual Bank in 2008 and the sale of its assets to JPMorgan Chase & Co. for $1.9 billion. It was the largest bank failure in U.S. history.
When she rejected one previous proposal in September, Walrath said WaMu's equity security holders had argued credibly that hedge funds supporting the plan had engaged in insider trading of the company's securities based on information they obtained during the bankruptcy.
The hedge funds denied the allegations.
Washington Mutual announced last month that it was submitting a new plan to distribute about $7 billion to creditors after reaching an agreement with the hedge funds and other major creditors.
Attorneys for a group of investors have suggested that the hedge funds were getting off too easily, arguing that Wednesday's disclosure statement should at least give creditors a sense of how much the inequitable conduct claims against them might be worth.
But Walrath said she would not require any further disclosure.
One attorney argued that Walrath can't confirm Washington Mutual's latest plan she would have to invalidate portions of her September ruling. A hearing on Washington Mutual's request for Walrath to do that is set this month.
In approving the disclosure statement filed Wednesday, Walrath refused a request from dissident creditors who bought WaMu securities to postpone further action on WaMu's reorganization plan until a federal district court judge rules in their appeal of an earlier ruling by Walrath.
Walrath ruled last year that some $4 billion in debt securities was automatically converted into preferred stock when the FDIC seized the holding company's flagship bank. The securities investors are likely to recover far less in bankruptcy than they would as holders of debt.
The securities holders argued in their lawsuit that the debt-to-equity conversion never took place, and that WMI had no authority to transfer the securities to its Washington Mutual Bank subsidiary, and thereby to JPMorgan.
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RANDALL CHASE 01/11/12 08:00 PM ET Associated Press