News for Credit Professionals       NACM-SE

WAMU Chapter 11: It’s All Over But the Repayments

Effective Tuesday, Washington Mutual officially has completed the Chapter 11 bankruptcy restructuring process that spanned nearly three-and-a-half litigious years.

WaMu, which will emerge as a much smaller company under the WMI Holdings moniker, confirmed that its bankruptcy plan approved in on Feb. 23 indeed has gone effective. It is now planning to begin the payment of nearly $7 billion to creditors (or, in many cases, the hedge funds that bought up assets from creditors who went bankruptcy during WaMu’s lengthy restructure).

It was the second largest corporate bankruptcy in U.S. history behind Lehman Brothers which, coincidentally, both went into bankruptcy protection mere weeks before WaMu did the same in September 2008 and emerged from the legal process weeks before it this year.

In February, Judge Mary Walrath approved the Washington Mutual (WaMu) reorganization plan in a case viewed as somewhat of a small victory for lower-level creditors. Even though most will receive pennies on the dollar as a result of the expense of a drawn-out case, it was a shock to many market-watchers that lower level creditors were able to recoup anything. It also found that the court, or at least Walrath, was not as willing to promote secured, senior creditors on the backs of others to the extent many believed would occur.

Marked by their size, drastically different plans and legal wrangling between creditors, attorneys and judges have characterized Lehman Brothers and WaMu as the two most difficult bankruptcy proceedings seen in U.S. court history. If nothing else, the cases may have illustrated the versatility and adaptability of the Chapter 11 system as the key take-away from the proceedings.

"To process the claims and have some sense of order going forward was quite an achievement," said Scott Cargill, Esq. of Counsel at Lowenstein Sandler PC in a late 2011 NACM interview about the implications of the massive reorganization cases. "In 2008, there were a lot of fears about whether our restructuring system could even handle something like this."

Brian Shappell, NACM staff writer