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(Updates with hearing continuation in eighth paragraph.)
Feb. 16 (Bloomberg) -- Washington Mutual Inc., the former owner of the biggest U.S. bank to fail, resolved a dispute that had threatened to block common shareholders from getting stock in the only part of the company to exit bankruptcy.
A group of creditors known as the TPS Consortium, who hold securities that resemble preferred shares, agreed to switch their vote on WaMu’s reorganization plan and support the $7 billion proposal, WaMu attorney Brian Rosen told U.S. Bankruptcy Court Judge Mary Walrath in Wilmington, Delaware today. Consortium attorney Robert Stark confirmed the deal.
In return for their support, the consortium members will share stock in the reinsurance company that would exit bankruptcy under the plan. The consortium and another group of investors who hold the same securities will share $18 million being provided by JPMorgan Chase & Co.
“We have been able to reach an agreement with those parties on the terms of a modification,” to the current reorganization plan, Rosen said.
The hearing today is WaMu’s third attempt to win court approval for its reorganization plan, which would pay $7 billion to creditors. That plan, which includes a settlement endorsed by a committee of preferred and common shareholders, would give the shares’ owners new stock in the only part of the company to survive.
Because the consortium had voted no on the plan, common shareholders could have lost their chance to get the stock. The switch means the plan will propose a split of the new stock with 25 percent going to common shares and the rest to preferred shares. The consortium members hold securities that Walrath ruled should be considered preferred shares.
WaMu, based in Seattle, filed for bankruptcy on Sept. 26, 2008, the day after its banking unit was taken over by regulators and sold to JPMorgan for $1.9 billion. Washington Mutual Bank had more than 2,200 branches and $188 billion in deposits.
The hearing is set to continue tomorrow when WaMu will respond to the remaining objections to the plan.
The bankruptcy case is In re Washington Mutual Inc., 08- 12229, U.S. Bankruptcy Court, District of Delaware (Wilmington).
--Editors: Stephen Farr, Mary Romano
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