The Colonial BancGroup, Inc (fka CBCGQ)

[Noil1]

Colonial Says FDIC $2.2B Bankruptcy Claim Should Be Cut To $1
By XiaoBing 2011-03-23 15:06:53 AM GMT +0800

(YTWHW.com US) - Colonial BancGroup Inc. (CBCGQ) said a bankruptcy judge should value the Federal Deposit Insurance Corp.'s $2.2 billion claim at $1, the latest development in the long-running fight between the holding company and federal regulators who took over its failing bank nearly two years ago.
In papers filed Monday in U.S. Bankruptcy Court in Montgomery, Ala., Colonial BancGroup, the former parent of Colonial Bank, said a bankruptcy judge should reject the FDIC's request to estimate its multibillion-dollar claim against its bankruptcy estate. Under bankruptcy law, a creditor can ask a judge to estimate a disputed claim for the purpose of voting on a Chapter 11 plan.

The FDIC, which is the receiver for Colonial Bank, has been sparring with the bank's parent since it took over the bank in 2009.
Colonial's bankruptcy estate said it is entitled to more than $900 million transferred from the holding company to the bank, plus a number of other assets including tax refunds, insurance proceeds and $300 million in REIT preferred securities. The FDIC said it has dibs on Colonial's assets.
But in what Colonial characterizes is a "novel" issue, if it is victorious in its fight with the FDIC, the FDIC said it will have a $2.2 billion contingent, unsecured claim against Colonial.

The FDIC, in effect, is asking for an estimation of its claim as a hedge against an unfavorable outcome in its litigation with the estate. The FDIC wants to be able to vote the full $2.2 billion--which would make it by far the bankruptcy estate's largest creditor--for the purpose of opposing Colonial's Chapter 11 plan.
Colonial said the FDIC really doesn't believe it will have a claim against the bankruptcy estate, given that it has, in court filings, consistently said the holding company's claims to the disputed assets are "meritless" and that its loss in the litigation is an "unlikely event."

The estate also points to what it calls the FDIC's "'we will bury you' statement of position" with respect to its Chapter 11 plan.
That's a reference to a recently disclosed offer from the FDIC to settle the Colonial litigation. The offer involved a carve-out of some $63 million in disputed assets--minus the fees and expenses racked up in the Chapter 11 case--to be earmarked for the estate's unsecured creditors.

Depending on the outcome of other lawsuits, the estate's creditors could have seen a recovery of somewhere between six cents and 13 cents on the dollar. But, according to court papers, no deal was ever reached and the FDIC withdrew its settlement offer earlier this month.
Colonial said that since FDIC doesn't believe it will have a claim against Colonial because it will prevail in the litigation between the two, the court should estimate the FDIC's contingent unsecured claim at $1 for the purposes of voting on the Chapter 11 plan.
A lawyer representing the FDIC couldn't be reached for comment.

Bankruptcy Judge Dwight H. Williams Jr. last month approved said Colonial could send its plan to creditors to vote on. Based on the judge's approval of Colonial's disclosure statement, a document describing the plan, the FDIC is required to vote its claim in the amount of $1 unless Williams said otherwise. The judge is set to consider the FDIC's request at a hearing March 28.

The FDIC was named receiver of Colonial Bank after regulators seized the Montgomery, Ala., bank in the summer of 2009 and transferred its assets to BB&T Corp (BBT). Colonial, which had $25 billion in assets and $20 billion in deposits, was the biggest bank failure of 2009. The FDIC estimates Colonial's collapse will cost its insurance fund $3.8 billion, making it one of the most expensive bank failures in U.S. history.

www.ytwhw.com/US/2011/0323/Colonial-Says-FDIC-2.2B-Bankruptcy-Claim-Should-Be-Cut-To-1.html