Hedge Funds Change Mind, OK WaMu Bankruptcy Plan

Feb 17 2012 | 4:24am ET

Just days after imperiling Washington Mutual's exit from bankruptcy, a group led by three hedge funds has breathed new life into the plan.

The so-called TPS Consortium—including hedge funds Black Horse Capital Advisors, Greywolf Capital Management and Scoggin Capital Management—voted against WaMu's reorganization plan earlier this week, leaving the bankrupt bank with less than the supermajority of preferred shareholders that it needs to push the plan through. This week's hearing on WaMu's plan to exit bankruptcy is the third time that firm, which collapsed in 2008, has sought court approval for such a plan.

In exchange for throwing their support behind the plan, the TPS parties will get stock in what's left of WaMu, a reinsurance company, and will share in $18 million provided by JPMorgan Chase, which bought WaMu's banking operations.

Without the change of heart by the hedge funds, common shareholders of WaMu could have been left with nothing. Now, common shareholders will get a quarter of the new shares.

WaMu is expected to respond to the remaining objections to its plan today.


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