(Updates with details of the settlement in sixth paragraph.)
Feb. 1 (Bloomberg) -- Washington Mutual Inc., the former owner of the biggest U.S. bank to fail, won approval to settle a dispute with investors who hold warrants related to a lawsuit against the U.S. government.
The settlement ends an appeal related to the lawsuit and will free $337 million that had been held in reserve, WaMu Attorney Brian Rosen said in court today. The dispute had threatened to delay payments related to the company’s proposed $7 billion reorganization plan, Rosen said in a hearing in U.S. Bankruptcy Court in Wilmington, Delaware.
“Sometimes it’s better to settle than to fight,” Arthur Steinberg, an attorney for the warrant holders, said in court today.
Later this month, U.S. Bankruptcy Judge Mary Walrath will consider approving WaMu’s reorganization plan, which is based on a series of settlements among creditors, WaMu, the Federal Deposit Insurance Corp. and JPMorgan Chase & Co., which bought WaMu’s bank for $1.9 billion in 2008.
The Seattle-based company filed for bankruptcy on Sept. 26, 2008, the day after its banking unit was taken over by regulators and sold to JPMorgan.
Investors who hold so-called litigation tracking warrants will be given almost 9 percent of the common stock of the only part of WaMu that may survive the bankruptcy under the reorganization proposal, a reinsurance company. The investors also would receive as much as $19 million from two potential pools of cash set up to pay different classes of creditors.
The warrants are tied to a successful lawsuit WaMu inherited when it took over Dime Bancorp in 2002. WaMu won the lawsuit, which related to the savings and loan crisis of the 1980s, against the U.S. government.
A judge in the lawsuit awarded damages of at least $350 million.
Warrant holders claimed at least 85 percent of any award in the case was theirs. Walrath ruled the holders were only entitled to common stock worth 85 percent of the eventual judgment, not any cash. Because WaMu filed bankruptcy, the common stock may never be worth as much as the eventual cash award.
The warrant holders dropped their appeal of Walrath’s ruling as part of the settlement.
WaMu’s 5.5 percent bonds that matured in August rose more than 8 percent to 117 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
The bankruptcy case is In re Washington Mutual Inc., 08-12229, U.S. Bankruptcy Court, District of Delaware (Wilmington).
--Editors: Glenn Holdcraft, Fred Strasser
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