Washington Mutual WAHUQ Trust Prf (fka WAHUQ)

[daimyo]

On the question of cash versus shares...

Speaking of do we get cash or shares, that makes me ask the question.

My best guess F.W.I.W. is a combination of both. In the worst case scenario prior to this development we were to be partially filled. If the settlement extends the payouts to equity as a result of a raised valuation, we should presumably receive in the new worst case part cash and part new equity. It's harder to determine precisely what's going on with respect to the Hs since we didn't have a seat for most of the early negotiations on the new settlement -- but it seems straightforward to say the road to any settlement that puts all old equity in play involves us being filled.

Part of the likely reason we are down a bit now is pure speculative greed moving money into the other WAMU classes. At this price level, Hs seem a very solid bet to double your money -- or perhaps more likely in specific, to get cashed out for at least the cash you put in, and then receive a free ride in some reorganized equity going forward. At the same time there's a sense in which Hs may capture less-per-dollar-invested of the speculative billions that P/K/common are believed by many to have coming their way.

Much less risk in the Hs, but potentially less reward, and the sentiment in bankruptcy play buyers trends towards high risk - high reward. Some WAHUQ money is probably flowing out of an easy double and towards imagined gains of 20,000% or whatever the latest hype is regarding $24 payments to commons.

In addition, the most we're likely to ever see before settlement is a 100% increase -- which would value us pretty much at full. While the commons could run to whatever crazy number they want. You could in theory get a 2 or 3x return on commons just by buying into the fever and selling before any settlement. This also (and more rationally) drives speculative money that way.

The primary things that have changed for Hs as far as I can tell by way if this new agreement is that:

1) We should be in some regard completely filled now - whatever doesn't come as cash should come as new equity.
2) The settlement should (hopefully) come sooner rather than later -- so capital put in now shouldn't be tied up for as long or indefinite a period while we await resolution.

My personal play? What I want to have on the table for WAMU is half in the Hs -- where even the worst news about an aborted settlement can only do so much harm in the long term hold. The other half in Ps.

If you look at the Mirant settlement which many of the same players were involved in, that payout took a preferred class and gave that one class (in that instance there was only one preferred class and it was a trust preferred) equal share in the new company commensurate with the entirety of common equity. Not saying the facts are similar enough to draw specific parallels -- but I'd say preferreds are unlikely to get screwed badly in the deal. In addition -- some people are hesitant on Ps based on the residue of the old conversion rates and fears that those would be enforced (making commons a much better buy at the moment) -- but in the case of Mirant -- for whatever it is worth -- the preferreds that had a 1.8 stipulated conversion value were actually converted to new shares at 1.486739 while the commons were converted into new shares at 0.027101 or in other words shares with a nominal conversion value of 1.8 converted relative to commons at 54.86 times... Of course if we imagined that same ratio now commons would demolish Ps, but we can't draw such parallels in terms of actual numbers -- only note that nominal conversion rates in that case meant nothing.

Who knows, in the end it seems a good idea to have a little something in WAMU period. Hs safest bet.. commons most speculative both in short term pre-settlement appreciation and post-settlement returns. Preferreds a solid middle.

My 2 cents.