A Delaware bankruptcy judge on Wednesday agree to give Washington Mutual Inc. more time to try to nail down an agreement that would resolve shareholders' long-standing objections to the bank holding company's proposed reorganization plan.
Judge Mary Walrath postponed a scheduled June 29 hearing to begin considering the company's existing reorganization plan so it can continue working to finalize a revised plan that would satisfy shareholders. The new hearing date is July 5.
"I am pleased to report that all of the parties have been diligently working toward getting this documented," said WaMu attorney Brian Rosen, who noted that agreeing on a new plan was taking longer than anticipated.
"We think a little bit longer is necessary to see if we can reach closure," he said.
If a final agreement is reached, Walrath could use the July hearing to consider the new plan, rather than the existing plan, which Washington Mutual says already has the overwhelming support of creditors.
Washington Mutual Inc. filed for Chapter 11 bankruptcy court protection in 2008 after its collapse, the largest bank failure in U.S. history. The federal government seized WMI's flagship bank, based in Seattle, and sold its assets to JPMorgan Chase for $1.9 billion.
Washington Mutual's current reorganization plan is based on a legal settlement of lawsuits pitting WMI, the Federal Deposit Insurance Corp. and JPMorgan against one another.
Walrath ruled in January that the proposed settlement was fair and reasonable, but WMI 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.
The entity that would emerge from bankruptcy as the successor to WMI would be a small reinsurance business whose primary value would be tax breaks that could be applied to future earnings. The shareholders have said that those tax breaks could be worth billions of dollars. But Washington Mutual and other creditors estimate the value to be far less.
The tentative agreement on what would be Washington Mutual's seventh proposed reorganization plan carves out $30 million from the bankruptcy estate to fund a litigation trust that shareholders and certain creditors could use to pursue legal claims against third parties. It 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 the tax breaks.
WMI shareholders have said that if the deal on the new plan falls apart, they reserve their right to press their existing objections to the current reorganization plan.