Judge postpones Washington Mutual hearing

By Randall Chase
AP Business Writer

WILMINGTON, Del. (AP) — Washington Mutual Inc. told a bankruptcy judge on Wednesday that it is close to completing an agreement with the Federal Deposit Insurance Corp. that could pave the way for the bank holding company to emerge from Chapter 11 bankruptcy.

Attorneys said further changes to Washington Mutual’s proposed reorganization plan and the disclosure statement that accompanies and explains it will be filed Friday after the FDIC board signs off on the agreement.

“Just tinkering,” Washington Mutual attorney Brian Rosen said after Judge Mary Walrath postponed a hearing in Delaware to consider whether to approve the company’s disclosure statement. “We’re going to get it done.”

Walrath continued Wednesday’s hearing until June 3 after attorneys for several creditor groups said they need more time to review what Washington Mutual is planning.

Washington Mutual, which submitted a revised reorganization plan on Sunday, suggested that the hearing be continued only until next week.

“We are trying to get this case out of Chapter 11 as quickly as possible,” Rosen told Walrath.

The case has been held up for months by wrangling between four groups, each of which is entitled to a share of WaMu’s assets and guarantees: WaMu, its bondholders, JPMorgan Chase & Co. and the FDIC. Twice the parties thought they had a deal, but both times it unraveled when one group decided it was being shortchanged.

The settlement agreement between Washington Mutual, the FDIC and JPMorgan Chase is the basis for the banking company’s reorganization plan. The parties had filed lawsuits against one another over roughly $4 billion in disputed deposit accounts after the FDIC seized WaMu’s flagship bank in 2008 and sold its assets to JPMorgan for $1.9 billion.

“We will not be back before the court without the executed agreement,” said Rosen, who urged quick action on the disclosure statement.

Rosen argued that the changes made in Sunday’s court filing related only to nuances of the settlement agreement and objections to the disclosure statement.

“There were not significant changes to the disclosure statement,” he said.

A spokesman for JPMorgan declined to comment on the agreement.

But attorneys for noteholders and shareholders said they are still trying to figure out how Washington Mutual plans to address their claims in the settlement agreement.

“I don’t know whether we are supportive or not supportive because I don’t know what settlement is being discussed,” said Philip Anker, an attorney representing holders of senior notes issued by Washington Mutual Bank before it was seized. “We need to get some reasonable time to allow people to look at it.”

But Rosen and attorneys for WMI’s official committee of unsecured creditors urged the judge to hold the disclosure statement hearing as soon as possible. As long as WMI remains in bankruptcy, the accrual of interest on its debt is eating into the funds that otherwise would be available for recovery by creditors, Rosen said.

“We’re trying to stave off an erosion of the creditor body,” he told the judge.

Walrath said that, given the length of the disclosure statement, parties deserve time to examine the changes being proposed. She ordered WMI to submit any further revisions by Friday, with objections to those changes due by May 28. WMI will have until June 2, the day before the rescheduled disclosure statement hearing, to make any additional revisions in response to those objections.

The original settlement proposed by WMI called for JPMorgan to turn over the disputed deposits to Washington Mutual after deducting $172 million as its share of tax refunds received.

In return, JPMorgan was to get 70 percent of expected tax refunds resulting from WaMu’s prior operating losses that are valued at about $3 billion, with Washington Mutual getting 30 percent. The plan submitted on Sunday revises that split to 80-20.

WaMu also was to get about 40 percent of a second round of operating-loss tax refunds valued at about $2.6 billion, with roughly 60 percent going to the FDIC. The current plan calls for WaMu to get 68.5 percent and the FDIC to get 31.5 percent of those refunds, in return for new indemnity concessions from JPMorgan.

Under the current plan, bank bondholders also would be eligible to receive up 5.5 percent of WMI’s share of the second round of tax refunds, with a cap of $150 million.

Shareholders would still receive nothing under the plan.

AP Business Writer Daniel Wagner in Washington contributed to this report.