Washington Mutual: Objection could stall June 6 plan confirmation

By Lisa Kerner

Charlotte, N.C., May 13 - Noteholders of Washington Mutual, Inc. non-debtor Washington Mutual Bank object to WaMu's modified sixth amended joint plan of reorganization and asked the court to deny its confirmation, according to a Friday filing with the U.S. Bankruptcy Court for the District of Delaware.

The company's supplemental disclosure statement for the plan was approved on March 30.

A plan confirmation hearing is scheduled for June 6.

The "WMB noteholders" are a group of institutional investors, comprised mostly of insurance companies, that collectively purchased more than $600 million in WMB senior notes and subordinated notes well in advance of the disclosure of any malfeasance at the bank and have suffered substantial monetary losses as a result, the filing said.

According to the noteholders, WaMu's plan cannot be confirmed because it "suffers from a number of significant defects."

The plan, the noteholders said:

• Improperly provides for the payment of post-petition interest on certain unsecured claims prior to the payment in full of the WMB noteholders' unsecured claims;

• Improperly provides for the payment of late-filed unsecured claims, including post-petition interest thereon, prior to the WMB noteholders' timely filed unsecured claims; and

• Impermissibly groups disparate creditors together in the same class and then proceeds to treat them differently by requiring some to release claims as a condition of distribution.

Also, the plan results in the WMB noteholders receiving less than they would were the debtors to be liquidated under Chapter 7.

Amended plan terms

As previously reported, the amended plan and supplemental statement were filed in February to make changes outlined in a court order denying confirmation of the company's previous plan.

Under the amended plan:

• A class has been created for late-filed claims, because the court ruled that this class must be paid before post-bankruptcy interest claims;

• Holders of late-filed claims will receive a share of liquidating trust interests, which will entitle them to trust distributions after all unsecured claims are paid in full;

• Any holder of a claim or equity interest that opts out of a non-debtor release provision will not receive a distribution;

• Entities that grant the releases provided in the non-debtor release provision will not release any claims they may have against non-debtor affiliates or against current or former officers and directors;

• The affiliates of claimants that grant releases under the non-debtor release provision will not be bound by the releases;

• The non-debtor release provision applies only to claimants that are entitled to receive a distribution under the modified plan, and, even then, only to the extent that they do not opt out of the non-debtor release provision;

• The treatment of Piers claims stays the same in the modified plan because the interests represented by the Piers are claims against Washington Mutual, rather than interests in its equity. As a result, the company said the Piers are properly classified and treated as unsecured debt; and

• Washington Mutual plans to seek affirmative consent to the non-debtor release provision from holders of claims in many of the classes that were previously categorized as unimpaired.

Washington Mutual, a Seattle-based savings and loan holding company, filed for Chapter 11 bankruptcy on Sept. 26, 2008. Its Chapter 11 case number is 08-12229.

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