Mr Cooper Group Inc (COOP)

[marayatano]

However, the discussion doesn’t end there because there apparently is some risk that the Court will apply the Absolute Priority Rule (APR) and rule that Common Equity Interest Holders (Class 22 – WAMUQ & PFG Claimants and Class 21 - DIMEQ) can’t be paid until the Preferred Holders in Class 19 are paid in full and that would present a $7.5 Billion hurdle based on Par value. The TPS Group, representing the Cayman REIT Preferred Holders, has been lobbying for the application of the APR, and they are not alone. Near the end of the hearing on Wednesday, January 11, 2012, the Judge even opined that the Debtors’ assumption that it could violate the APR was “Optimistic”, which signals that she is giving some consideration to instituting the APR. Absent that, the Court has the discretion, and the blessing of the Debtors and the Equity Committee, to adjust the proposed distribution of 30% of Newco to Common Equity Interest Holders. The institution of the APR or any downward adjustment of the Newco allocation by the Court would necessarily mean that the currently proposed recovery for all Common Equity Interests would be decreased if not entirely eviscerated. Accordingly, there is risk that the Newco portion of the recent LTW Settlement may have no value in the hands of the LTW Holders.

So it begs the question, if the APR is instituted, why would the Preferred classes receive all of the Newco when senior classes of subordinated claims in Class 18 are projected to receive no recovery under the plan? The answer there would seem to be that, since the Court bestowed upon the Equity Committee the opportunity to pursue “Colorable Claims” for the purported insider trading of certain Settlement Noteholders, the EC would obviously not agree to give up the opportunity to pursue those claims (via the current settlement embodied within the Plan) if none of their constituency would receive any benefit. So my guess is that if the Absolute Priority Rule is applied, and that is still a big if, it would only be imposed amongst the equity classes. It remains to be seen what will happen there but it bears noting that, according to the Ballot Instructions, votes for the Common Equity Interest Holders (except for DIMEQ) and the Preferred Holders in Class 19 would have to be submitted and received no later than February 9th for the votes to count and the Releases would have to be tendered by February 29th in order for the equity classes to be eligible to receive a recovery under the Plan. The big downside is that by the time that the Releases are provided, Equity Interest Holders won’t know what the final treatment will be.

http://www.distressed-debt-investing.com/2012/01/advanced-distressed-debt-lesson.html