Washington Mutual, creditors, equity committee, reach tentative agreement to close Chapter 11

By Lisa Kerner

Charlotte, N.C., May 24 - Washington Mutual, Inc., some of its creditors and the official committee of equity security interest holders reached a tentative settlement agreement, possibly bringing the company one step closer to completing the Chapter 11 process.

Under the agreement, which has yet to be finalized:

A litigation trust will be established to pursue claims and causes of action that are property of the debtors against non-released third parties. It will be funded by Washington Mutual with an initial $5 million cash contribution and additional contributions, under some circumstances, in an amount not to exceed $25 million.

• Common equity in the reorganized debtor will be distributed to holders of allowed, subordinated claims and the company's preferred and common equity holders.

• Certain holders of allowed claims, other than those holding allowed claims who would have previously received common equity in the reorganized debtor, have agreed to receive a debt instrument and a preferred equity instrument having a combined, aggregate net present value of about $160 million; and

• Certain significant creditors will commit to provide a senior secured credit facility for the reorganized debtor in an amount not to exceed $100 million.

Once a plan is filed consistent with these terms, the equity committee will stay its appeal of the Bankruptcy Court's Jan. 7, 2011 order regarding plan confirmation and once the plan is confirmed, the committee will withdraw such appeal, a company news release said.

If the parties are unable to reach a definitive agreement that incorporates the tentative settlement, Washington Mutual will proceed with the hearing scheduled to begin on June 29 to seek confirmation of the plan of reorganization currently pending before the court.

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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