over splitting unit
Washington Mutual Inc.'s agreement with shareholders, aimed at ending opposition to the company's more than $7 billion reorganization proposal, has fallen apart, three people with direct knowledge of the negotiations said.
The talks unraveled over how to split up ownership of the only WaMu unit that will survive the collapse of the Seattle company, which is the former owner of the biggest U.S. bank to fail, one person with knowledge of the negotiations said.
Creditors, the company and shareholders were trying to complete a contract based on the outline of a settlement that would have given shareholders a stake in that surviving unit, a reinsurance company.
WaMu and a committee of shareholders tried to give both common and preferred shareholders a stake in the reinsurance company. They were opposed by a group of preferred holders, who were concerned about anything being given to holders of the common stock, the person said.
"The equity committee and the debtors were trying to provide for a distribution to both," the person said. "The debtor was hard set on giving something to the commons."
According to payment priorities in bankruptcy proceedings, preferred holders must be paid in full before common shareholders get anything.
Should shareholders get nothing from a reorganization, there may be more money available to pay WaMu's noteholders.
The collapse of the talks means that WaMu will move forward with its sixth version of a reorganization plan that proposes to give nothing to shareholders. U.S. Bankruptcy Court Judge Mary Walrath said in a hearing earlier this month that should the agreement fall apart, the parties would return to court July 5 to begin a battle on whether to approve the so-called sixth amended plan.
Now, to defeat that plan, the equity committee has renewed its investigation of four hedge funds it suspects of using confidential information to buy and sell WaMu debt. The committee suspects the hedge funds used information gained while negotiating the sixth amended plan with WaMu.
Shareholders filed notice in bankruptcy court Wednesday that they will take testimony from Centerbridge Partners, Appaloosa Management and Owl Creek Asset Management, filings show. The company has already questioned the fourth hedge fund, Aurelius Capital Management.
Walrath gave shareholders permission to question hedge funds that hold WaMu notes under oath and collect documents about their WaMu trades. Depositions of the hedge funds had been on hold during the current round of negotiations.
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