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FDIC Declines Extension of Timeframe for $7B WaMu Bankruptcy
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WILMINGTON, Del. — The Federal Deposit Insurance Corp. has balked at extending the termination date for a three-way deal at the heart of Washington Mutual Inc.'s Chapter 11 plan, company attorney Brian Rosen said Monday.
The settlement has not been terminated and won't terminate automatically. However, the refusal of the FDIC to consent to an extension means the $7 billion agreement could be terminated at any time by any party, said Rosen, who's with Weil Gotshal & Manges.
The announcement came at a hearing in the U.S. Bankruptcy Court in Wilmington, Del., where Judge Raymond Lyons, a New Jersey bankruptcy judge, was scheduled to report on progress in a mediation over disputes that have held Washington Mutual in bankruptcy. Lyons has asked for two additional weeks to make his report.
The matters under mediation don't directly involve the settlement, and there are no signs Washington Mutual or JPMorgan Chase & Co., the other two parties to the Chapter 11 plan settlement, are inclined to pull out of the deal.
A spokesman for the FDIC could not immediately be reached for comment Monday on whether the agency intends to continue abiding by the settlement.
Washington Mutual and JPMorgan Chase agreed to the extension, Rosen said. They are the old and new owners, respectively, of Washington Mutual Bank, or WaMu, a thrift that was seized by regulators in September 2008 due to concerns it was a hazard to the shaky U.S. financial system.
Washington Mutual, JPMorgan Chase and the FDIC agreed to settle disputes over what went wrong at WaMu, dividing up billions in cash and other assets. The pact formed the core of Washington Mutual's Chapter 11 plan.
The settlement has survived attack from shareholders twice, but Washington Mutual's Chapter 11 plan was rejected twice due to unrelated defects.
Washington Mutual's continued stay in bankruptcy is upsetting creditors, said David Stratton, attorney for the official committee of unsecured creditors.
Stratton, who's with Pepper Hamilton LLP, cited the $30 million monthly cash burn, which is eating away at the recovery for the lowest-ranking creditors in the three-year-old case.
The case delay is more costly to some creditors than to others, as most of the cash burn is in the form of interest that is adding up on senior debt
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