Law360, Wilmington (June 05, 2013, 11:23 PM ET) -- A Delaware bankruptcy judge approved PMI Group Inc.'s disclosure statement Wednesday, allowing the mortgage insurance holding company to solicit votes for a plan that would see it emerge from Chapter 11 as a going concern holding up to $1.2 billion in tax assets.
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The proposed plan, which would hand creditors $200 million in cash as well as stock in the reorganized company, marks the light at the end of the tunnel for PMI Group, which has been stuck in bankruptcy since November 2011.
U.S. Bankruptcy Judge Brendan L. Shannon said that although the case had been around for a while, he fully appreciated the complexity of the issues and believed the disclosure statement adequately described the company's plan.
“I have no reservations about approving and authorizing the disclosure statement,” Judge Shannon said.
PMI Group sought court protection in November 2011 after its business collapsed in the housing bust and the Arizona Department of Insurance seized its operating subsidiary — PMI Mortgage Insurance Co., or MIC — and other units.
MIC was subsequently placed into receivership by an Arizona court, and the Delaware bankruptcy became mired in multistate litigation over control of $2.2 billion of tax assets until a mediated settlement was reached in November 2012.
Under the watershed deal, PMI Group received $20 million in exchange for $1 billion of net operating losses and retained the other $1.2 billion of tax breaks for its own use, according to court documents.
Among other provisions, the settlement also resolved a $45.6 million claim by the Pension Benefit Guaranty Corp., and all in all provided “tremendous value to the estate,” PMI Group attorney Joseph M. Barry of Young Conaway Stargatt & Taylor LLP told the court.
After the deal was approved in December, PMI “engaged in a process to essentially monetize its tax attributes” by seeking outside investors to sponsor a plan, Barry said, but negotiations with two parties failed to pan out and the company decided in April to pursue a stand-alone reorganization.
Worked out with the assistance of the unsecured creditors committee, the current plan has the support of major constituents, he said, and would allow PMI Group to move forward as a going concern with its valuable tax attributes in hand.
Under the proposed plan, the debtor's $200 million in cash would be divvied up between senior noteholders, owed $691.1 million, and general unsecured creditors, owed between $6.3 million and $10.3 million, with both groups receiving the remainder of their claims in new stock.
Recovery for senior noteholders is estimated at 29 percent, a few points higher than that of general claimholders, the statement said, because while the treatment for both groups is essentially the same, the senior creditors will receive distributions that would otherwise go to subordinated noteholders per the underlying indenture agreements.
The plan “provides the greatest amount of value for the assets” and is backed by the creditors committee, said attorney Jordan A. Wishnew of Morrison & Foerster LLP, who represents the committee. Judge Shannon approved the committee's letter in support of the deal, copies of which will be mailed out with the disclosure statements.
PMI Group's statement was largely uncontested, Barry said, noting the debtor had resolved concerns presented by the U.S. Trustee and the Arizona receiver.
The only dissent came in the form of two objections filed by individual shareholders, which Judge Shannon overruled on the ground that the issues they raised did not go to the statement itself.
Creditor have until July 9 to vote on the plan, and a confirmation hearing is scheduled for July 18.
If the plan is approved, PMI Group will exit bankruptcy holding at least $500 million in net operating losses and $295 million in income tax credits, along with ownership interest in some of the regulated subsidiaries, which have $5 million cash in hand, according to the statement.
Walnut Creek, Calif.-based PMI Group listed assets of $225 million against $736 million in debt when it filed for bankruptcy in November 2011.
PMI Group is represented by Pauline K. Morgan, Joseph M. Barry, Kara Hammond Coyle and Patrick A. Jackson of Young Conaway Stargatt & Taylor LLP.
The official committee of unsecured creditors is represented by Francis A. Monaco Jr., Kevin J. Mangan and Thomas M. Horan of Womble Carlyle Sandridge & Rice LLP and Anthony Princi and Jordan A. Wishnew of Morrison & Foerster LLP.
The bankruptcy case is In re: The PMI Group Inc., case number 1:11-bk-13730, in the U.S. Bankruptcy Court for the District of Delaware.
--Additional reporting by Lance Duroni. Editing by Elizabeth Bowen.
