Washington Mutual Inc. has reached a tentative agreement with shareholders that could resolve their long-standing objections to the bank holding company's proposed reorganization plan, an attorney for the company told a federal bankruptcy judge in Delaware on Tuesday.
The agreement could bring Washington Mutual, which filed for Chapter 11 protection in 2008, closer to exiting bankruptcy.
The tentative agreement carves out $30 million from Washington Mutual's bankruptcy estate to fund a litigation trust that shareholders and certain creditors could use to pursue legal claims against third parties, said Washington Mutual attorney Brian Rosen.
The agreement also calls for a noteholder group that includes four hedge funds supporting WMI's current reorganization plan to provide a $100 million credit line that stockholders in the reorganized company could use to make acquisitions in order to take advantage of certain tax breaks. The shareholders have said that those tax breaks, which will pass onto a new reinsurance company to be established as the successor to WMI, could be worth billions of dollars.
Rosen said he hoped to file a new plan based on the tentative agreement with shareholders by the end of next week.
"This was a tremendous, positive step, and we now have a tentative settlement among all these parties," Rosen told Judge Mary Walrath.
The company's existing reorganization plan, which Rosen said has received overwhelming support from creditors, is the subject of a confirmation hearing set to begin June 29. But that hearing could instead be used to approve documents outlining the proposed new plan if a final agreement is reached. If the deal falls apart, WMI shareholders reserve the right to press their existing objections to Washington Mutual's reorganization plan, according to William Bowden, an attorney for WMI's official committee of equity security holders.
Concerns that the official committee of unsecured credits have about the new agreement also must be addressed before a final plan is reached. It wants to make sure that recoveries for creditor groups that have voted for the existing plan are not impaired under the new plan, said Fred Hodara, an attorney for the committee.
Washington Mutual's proposed reorganization plan is based on a legal settlement involving WMI, the Federal Deposit Insurance Corporation and JPMorgan Chase Bank. The settlement would resolve lawsuits that were filed after the FDIC seized the company's flagship bank in 2008 and sold it to JPMorgan Chase for $1.9 billion.
Walrath ruled in January that the proposed settlement was fair and reasonable, but the shareholders have challenged that ruling in federal district court, saying Washington Mutual presented no evidence of any legal analysis of the merits of the claims being settled.
Under the proposed legal settlement, the competing lawsuits would be dismissed and some $10 billion in disputed assets would be distributed to WMI, JPMorgan and the FDIC.
JPMorgan would turn over some $4 billion in disputed deposit accounts to WMI for distribution to holders of allowed claims against the bankruptcy estate. JPMorgan in return would get 80 percent of expected tax refunds resulting from Washington Mutual's prior operating losses, which are valued at between $2.7 billion and $3 billion. Washington Mutual would get 20 percent.
Washington Mutual also would get about 70 percent of a second round of operating-loss tax refunds valued at about $2.8 billion, with roughly 30 percent going to the FDIC. WaMu would give $335 million of its share to holders of senior Washington Mutual Bank notes, who are owed billions of dollars, in return for their support of the reorganization plan.