MONSTROUS NEWS: WAMUQ $1 soon?
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NEW YORK (Dow Jones)--The senior and subordinated holding company bonds of
Washington Mutual soared in value Tuesday after the firm confirmed it has more
cash than previously thought that can go towards paying off holders of this
debt as part of the company's restructuring.
In a filing with the Securities and Exchange Commission (SEC), Washington
Mutual confirmed that it and its non-bank subsidiaries had approximately $5
billion of cash on deposit with Washington Mutual Bank and its bank subsidiary,
Washington Mutual Bank fsb.
"This cash can go to paying off bondholders as part of the company's
bankruptcy restructuring," said Guy LeBas, fixed income strategist at Janney
Montgomery Scott. The confirmation has seen Washington Mutual's bonds rally
LeBas said the thrift's senior unsecured bonds were bid at 67 cents on the
dollar Tuesday morning. This implies investors could now be looking at a
significantly higher recovery of 88 cents on the dollar on the senior debt,
LeBas calculated. This is assuming a 20% discount and an 18 month timeframe to
resolution of the bankruptcy, he said.
The senior bonds closed last week at around 42 cents on the dollar.
The subordinated bonds meanwhile are seen trading in the mid to high teens
against a mere four cents on the dollar late Friday, another portfolio manager
said. Recovery on the subordinated debt is a little murkier, LeBas said,
because it depends a lot more on the goodwill of Washington Mutual's other
creditors. He estimates that holders of this debt could be looking at recouping
around 10 cents on the dollar.
JP Morgan Chase & Co. (JPM) announced late Thursday it will acquire all
deposits, assets and certain liabilities of Washington Mutual's banking
operations from the FDIC.
Washington Mutual collapsed under a surge of deposit withdrawals.
The deal involves JP Morgan acquiring Washington Mutual's branches, deposits
and its loan assets. JP Morgan, however, won't take on any of Washington
Mutual's unsecured debt or preferred stock or any of the assets of liabilities
of the holding company nor the holding company's non-bank subsidiaries.
Initial estimates from CreditSights last week put the cash balance at the
holding company at about $2.8 billion.
Such a small cash balance would have been nowhere near enough to ensure that
the bondholders would fully recover their investment in the firm. Indeed,
Washington Mutual has about $5.7 billion of unsecured bonds, including $4.1
billion of senior debt and $1.6 billion of subordinated debt, according to
As a result, market participants last week were estimating that the recovery
prospects for senior and subordinated bondholders looked very bleak indeed.
Senior unsecured bondholders could have been looking at a recovery on their
investment of between $0.25-$0.30, while subordinated debt holders may end up
with very little at all, participants said at the time.
-By Kate Haywood and Romy varghese, Dow Jones Newswires; 201-938-2348;
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