News on ETPro... It's Peg...
By Peg Brickley
Of DOW JONES DAILY BANKRUPTCY REVIEW
Aurelius Capital Management has dropped a challenge to the settlement that
forms the core of Washington Mutual Inc.'s (WAMUQ) Chapter 11 plan.
The hedge fund says it doesn't want its quarrels over the fairness of the
bankruptcy settlement to hold up an expected $7 billion pay day for creditors
of the company, the former parent of Washington Mutual Bank, or WaMu.
Final arguments are set for later this month before Judge Mary Walrath, who
rejected Washington Mutual's Chapter 11 plan earlier this year and is now
weighing a revised version. The plan is under attack by shareholders and others
who will be left with little or nothing if the plan goes through.
Opposition from Aurelius arose late in the proceeding and stemmed from the
hedge fund's impatience about when it could cash in its Washington Mutual
investment.
WaMu was seized and sold by regulators in September 2008, touching off a wave
of legal actions involving its former parent and its new owner, J.P. Morgan
Chase & Co. (JPM).
The Chapter 11 plan now under court consideration is based on a settlement
that resolves much of the legal trouble and divides cash among regulators, J.P.
Morgan and Washington Mutual. Aurelius once was an avowed backer of the pact,
along with other hedge funds that stood to profit from Washington Mutual's
collapse.
Debt bought for a fraction of a dollar in 2008 will be paid in full, with
interest, under the plan.
In June, however, Aurelius did a turnabout and attacked the Washington Mutual
settlement. The settlement was no longer a good one for creditors due to the
delay in getting Washington Mutual out of Chapter 11 and getting cash into
creditors' hands, the hedge fund said.
Until the settlement is approved by way of an order confirming the Chapter 11
plan, J.P. Morgan can hang on to $4 billion in cash that was sitting in
parent-company accounts at WaMu when the thrift was seized.
The cash is accruing interest at a low rate during the delay, feeding what
Aurelius reckons is a loss of several hundred million dollars. That loss
estimate also includes the monthly accrual of interest on senior debt and
professional fees, which have been running at an estimated $40 million per
month.
In a court filing Wednesday, Aurelius said it was standing down from a demand
that the court review the settlement in light of the delay because such a
review could mean a longer delay and more punishment for the lowest-ranking
creditors.
Delay costs are feeding some senior creditors because their debt is accruing
interest at the contract rate. The delay is eating away at the expected
recovery to junior classes, including holders of a security known as the PIERS.
At one point in the case, Aurelius reported owning $128 million worth of the
PIERS securities. The hedge fund has declined to say whether that number has
changed.
(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;
peg.brickley@dowjones.com
(END) Dow Jones Newswires
08-18-11 1339ET
Copyright (c) 2011 Dow Jones & Company, Inc.
13:39 081811
