A bankruptcy judge Monday indicated she would allow Washington Mutual Inc. to poll creditors on its Chapter 11 plan, which embodies a $7 billion settlement of damage claims stemming from the largest banking collapse in U.S. history, that of Washington Mutual Bank, or WaMu.
Judge Mary Walrath of the U.S. Bankruptcy Court in Wilmington, Del., indicated she'd sign an order allowing WaMu's former parent to push ahead and start the plan voting process over objections from shareholders, some WaMu bondholders and other creditors. They urged the court to delay plan voting to await the results of congressional and court-ordered probes.
Washington Mutual filed for Chapter 11 bankruptcy protection one day after losing WaMu to a regulatory seizure in September 2008. Results of a court-ordered investigation into WaMu's collapse will be available Nov. 1, weeks in advance of the deadline for voting on the plan, Walrath noted, refusing to hold up preliminary review of Washington Mutual's Chapter 11 plan explanation.
Shareholders warned the findings of examiner Joshua Hochberg could upset the distribution scheme laid out in the plan, which is premised on a settlement with regulators and with JPMorgan Chase & Co., which bought WaMu after it was seized.
"We should wait to see what the examiner has to say," argued Justin Nelson of Susman Godfrey LLP, attorney for an official shareholders committee. Shareholders are slated to get nothing if Washington Mutual's Chapter 11 plan is ultimately confirmed.
Additionally, shareholders are watching for a December report expected from a bipartisan congressional body, the Financial Crisis Inquiry Commission, looking for ammunition to attack Washington Mutual's Chapter 11 plan settlement.
The shareholders claim regulators pushed the ailing WaMu into JPMorgan's hands at an unfair price and for questionable reasons. JPMorgan and the FDIC have denied wrongdoing and back Washington Mutual's plan as an efficient way to keep the WaMu fights from tying up the money for years.
Monday's court action moves Washington Mutual and its leading creditors closer to a potential payday, but does not end disputes over the plan, which still must meet the test of a Chapter 11 confirmation hearing.
Washington Mutual still must defeat continuing objections from shareholders, some WaMu bondholders and an assortment of other creditors.
One group of senior WaMu noteholders agreed to support Washington Mutual's plan, which gives them $355 million, a $60 million improvement over earlier versions of the Washington Mutual plan.
Other WaMu bondholders said they were left out of the negotiations on the WaMu debt and don't like the deal.
"No one should be under the impression that the settlement was widely discussed or is widely supported," said Evan Flaschen of Bracewell & Giuliani, attorney for investors that own both senior and subordinated debt issued by WaMu, in an interview shortly after the latest plan amendment was announced.
Washington Mutual's Chapter 11 plan means windfall profits for those who bought bonds issued by the parent company when they were selling for pennies on the dollar in the wake of WaMu's seizure. Many will get face value of their debt with interest if the plan is approved.
Holders of WaMu debt, on the other hand, will see a reduced recovery from the parent company bankruptcy case. Many have sold their holdings during the more than two years Washington Mutual has been trying to wrap up its affairs in Chapter 11.
