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Shareholders In New Protest On Washington Mutual Exit Plan
By Peg Brickley
Of DOW JONES DAILY BANKRUPTCY REVIEW

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Shareholders are calling for the reopening of Chapter 11 plan confirmation
hearings for Washington Mutual Inc. (WAMUQ) due to a recent, little-noticed
move that "significantly impacts" the value available to pay creditors of the
bank holding company.

Friday, the company quietly postponed until 2011 the formal abandonment of
its equity interest in Washington Mutual Bank, or WaMu, the thrift it lost to a
regulatory seizure in 2008. The matter was pushed off the agenda for a
bankruptcy court hearing last week, and rescheduled for Jan. 6.

That delay of a few weeks triggered tax breaks that could be worth billions,
the official committee representing Washington Mutual's shareholders said in
papers filed Tuesday with the U.S. Bankruptcy Court in Wilmington, Del.

Instead of the $100 million worth of tax breaks that company financial
advisors estimated would be available to the reorganized company, the
post-bankruptcy Washington Mutual could take advantage of nearly $5.5 billion
in tax breaks, shareholder attorneys say.

That's a big difference, and one worth a new objection to confirmation of
Washington Mutual's Chapter 11 plan, shareholders contend.

Washington Mutual, through a spokesman, declined comment Tuesday on the bid
by shareholders to call the attention of the judge to what they say is a defect
that makes the company's Chapter 11 plan unconfirmable.

The plan pays off billions of dollars of debts, with interest, but leaves
nothing for shareholders. Their attorneys say that's improper for a lot of
reasons, including what they claim is an overpayment to noteholders that struck
a deal with the company. In addition to getting paid in full, four hedge funds
will control the post-bankruptcy Washington Mutual, an entity that is supposed
to manage a portfolio of insurance assets.

In the hands of Appaloosa Management, Centerbridge Partners, Owl Creek Asset
Management and Aurelius Capital Management, however, the reorganized Washington
Mutual will have access to the capital and financial expertise to build a book
of business designed to make the most of billions of dollars worth of in tax
writeoffs, shareholders contend.

"We believe that there is potential for significant value in the reorganized
company," said Justin Nelson of Susman Godfrey in an interview Tuesday. He is
the attorney for the official shareholder committee, which battled the
company's Chapter 11 plan at confirmation hearings in December.

For purposes of the confirmation decision that Judge Mary Walrath is
weighing, the key fact in the view of shareholders is that the new value from
tax breaks gives the settling holders more than what they are owed. The Chapter
11 waterfall is supposed to allow value to drop to the next level once a class
of creditors has received 100% of what is it owed.

If the post-bankruptcy Washington Mutual is suddenly worth a whole lot more
than it was when it was discussed at confirmation hearings, that means some
creditors will get more than 100%, residual value that properly belongs to
them, shareholders contend.

The tax breaks come from net operating losses the parent company is entitled
to claim due to the loss of WaMu. Intricate rules determine how and when those
NOLs can be used. Had Washington Mutual gone ahead with its plan to jettison
its WaMu stake Dec. 24, the NOL's would have been of limited usefulness.

Now that WaMu's former parent has decided to wait until the New Year to cut
the cord once and for all, the reorganized company will have an "unlimited NOL
carryforward of nearly $5.5 billion," shareholders said in Tuesday's court
filing.

At confirmation hearings in December, shareholders accused Washington Mutual
of burying the value of the reorganized company. Additionally, they contend the
company sold them out short when it came to getting justice for the loss of
WaMu.

The September 2008 seizure and sale of the mortgage-stuffed thrift touched
off a storm of legal action over everything from the cash in the parent
company's bank accounts to the rights to tax refunds to the question of who was
to blame for ruining WaMu.

Washington Mutual's Chapter 11 plan embodies a deal with J.P. Morgan Chase &
Co. (JPM) and the Federal Deposit Insurance Corp. that settles a series of
lawsuits. J.P. Morgan bought WaMu. The FDIC brokered the deal.

Monday, the judge who presided over the Washington Mutual confirmation
contest announced she would not render a decision on confirmation until 2011.
Shareholders want to schedule a hearing on their motion to file a new
confirmation objection Jan. 6.


(Dow Jones Daily Bankruptcy Review covers news about distressed companies and
those under bankruptcy protection.)

-By Peg Brickley, Dow Jones Daily Bankruptcy Review; 302-521-2266;
[e-mail]


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12-21-10 1559ET

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