Washington Mutual Senior Bondholders Join FDIC in Opposing Proposed Settlement
NEW YORK, March 29 /PRNewswire/ -- Senior bondholders of Washington Mutual Bank (WaMu) expressed their collective support for the Federal Deposit Insurance Corporation's (FDIC) decision, as reported by the Wall Street Journal today, to reject a settlement proposed by JPMorgan Chase and Washington Mutual Inc. ("WMI") as not reflecting the discussions between the parties. Although the proposed settlement would resolve certain claims relating to the WaMu receivership estate and WMI's bankruptcy proceedings, the senior bondholders consider it to be unacceptable.
"JPMorgan Chase is claiming $2.6 billion in tax refunds created by the stimulus bill that it does not own and which Congress intended to go to others. WaMu bondholders do not support JPMorgan Chase's proposed settlement because it seeks to use these WaMu tax refunds for the benefit of JPMorgan Chase either to settle WMI claims against JPMorgan Chase or to indemnify JPMorgan Chase against other claims," stated William Isaacson of Boies, Schiller & Flexner LLP, a counsel for bondholders.
Isaacson added, "The senior bondholders commend the decision of the FDIC to decline the current proposed settlement and we plan to work constructively with the FDIC and the other parties to attempt to reach a resolution of the issues that will provide a fair and beneficial settlement for bondholders and the receivership estate."
WaMu has been in receivership since September 25, 2008, the same day the FDIC sold existing assets of WaMu to JPMorgan Chase. Prior to the bank's demise, senior bondholders provided WaMu with essential financing and liquidity. JPMorgan Chase's acquisition of WaMu was structured as an asset purchase, so that JPMorgan Chase could avoid taking on WaMu's obligations to its creditors, which include the senior bonds.
The FDIC and senior bondholders were recently asked to approve a proposed settlement described in general terms on March 12, 2010 in the WMI bankruptcy proceedings. The settlement, among other issues, seeks to resolve claims to the FDIC by JPMorgan Chase to two tax refunds that arose after the asset sale and that the senior bondholders maintain should be paid to WaMu receivership. Senior bondholders have objected to the proposed settlement in part because the proposed settlement would unfavorably resolve a claim by JPMorgan Chase that, as the asset purchaser, it should be paid by the WaMu receivership estate an estimated $2.6 billion tax refund from stimulus money created by the November 2009 Worker, Homeownership, and Business Assistance Act. JPMorgan Chase made this claim despite the fact that this same legislation bars TARP recipients such as JPMorgan Chase from receiving those tax refunds. Bondholders have also objected to JPMorgan Chase's claim to a $3 billion tax refund based on the post-asset sale tax losses generated by the FDIC's sale of WaMu's assets to JPMorgan Chase for $1.88 billion.
Senior bondholders have contended to the FDIC that the proposed settlement described in the bankruptcy court would have improperly permitted JPMorgan Chase to use major portions of the tax refunds belonging to the WaMu receivership estate, including the stimulus tax refund, to settle WMI's claims against JPMorgan Chase. The proposal would have further allowed JPMorgan Chase to direct another $1.4 billion of the stimulus tax refund to the receivership estate to be used to indemnify JPMorgan Chase.
Senior bondholders include, among others, Marathon Asset Management, the D. E. Shaw group, Solus Alternative Asset Management LP, Caspian Capital Advisors LLC, and over 20 others.
Boies, Schiller & Flexner LLP
Also issued on behalf of:
Sean F. O'Shea, O'Shea Partners LLP, counsel for bondholders
SOURCE Boies, Schiller & Flexner LLP