WaMu Gets Closer to Bankruptcy Exit (full story)
By PEG BRICKLEY and MIKE SPECTOR
Washington Mutual Inc. reached a deal that could end a two-and-a-half-year bankruptcy odyssey that began with the largest bank failure in U.S. history.
The settlement between feuding shareholders and creditors means that the company could emerge from bankruptcy later this year.
Terms of the deal call for the reorganization plan proposed by Washington Mutual's estate to be revamped in several ways.
Shareholders would get ownership stakes in the restructured company, which was marooned when U.S. regulators seized most of its operations and sold them to J.P. Morgan Chase & Co. in September 2008.
Once it exits bankruptcy, Washington Mutual also will get the benefit of net operating losses that could result in $2 billion to $5 billion in tax breaks. And a litigation trust of $30 million benefiting shareholders will also be created to file lawsuits against Washington Mutual's former auditors, underwriters and other parties.
The settlement was brokered by four hedge-fund creditors accused of insider trading during Washington Mutual's bankruptcy case. As part of the deal, shareholders will drop an investigation into whether the hedge funds improperly traded Washington Mutual debt while negotiating the company's bankruptcy plan.
Shareholders said their investigation had failed so far to show that any of the hedge funds traded securities while in possession of material, nonpublic information, said Brian Rosen, a partner at law firm Weil, Gotshal & Manges LLP who represents Washington Mutual, during a hearing in a Delaware bankruptcy court on Tuesday.
The deal came after hedge funds Appaloosa Management LP, Centerbridge Partners LP, Owl Creek Asset Management LP and Aurelius Capital Management LP revived talks with shareholders, according to Mr. Rosen.
Aurelius hasn't signed off on the agreement but "will endeavor to try to achieve a successful resolution" of its remaining reservations, said Kenneth Eckstein, a partner at law firm Kramer Levin Naftalis & Frankel LLP who represents Aurelius.
The agreement still must be approved by the judge overseeing Washington Mutual's bankruptcy proceeding. The current reorganization plan calls for the distribution of about $7 billion.
The hedge funds agreed to provide $100 million in financing to the reorganized Washington Mutual if it can't get better terms from other investors.
Washington Mutual will run a fading insurance operation but could buy other businesses to take advantage of tax breaks stemming from losses piled up by its former banking operations before they failed under the weight of bad subprime mortgages.
Another key deal paving the way for Washington Mutual's bankruptcy exit was reached last year with U.S. regulators and J.P. Morgan, providing the bulk of the cash to be distributed under the plan.
Washington Mutual sought Chapter 11 bankruptcy protection a day after regulators seized the company's banking operations. The collapse came nearly two weeks after Lehman Brothers Holdings Inc. tumbled into bankruptcy.
Write to Peg Brickley at peg.brickley@dowjones.com and Mike Spector at mike.spector@wsj.com
