WaMu Bankruptcy Plan Approved

Feb 21 2012 | 1:24am ET

More than three years after the collapse that triggered it, Washington Mutual's bankruptcy is near an end.

A federal bankruptcy judge in Delaware on Friday approved the former bank's Chapter 11 exit plan. U.S. Bankruptcy Judge Mary Walrath had twice before rejected reorganization plans in a case that prominently featured hedge funds and private equity firms at almost every turn.

The approval of the $7 billion sets the stage for creditors—prevalent among them alternative investors who snapped up WaMu debt for pennies on the dollar—to begin receiving payments in just weeks. A lawyer for the company's unsecured creditors said March 8 is the likely date for the first big payout.

Four hedge funds—Appaloosa Management, Aurelius Capital Partners, Centerbridge Partners and Owl Creek Management—played a role in crafting WaMu's first bid to exit bankruptcy. But the four refused to renew their support for the plan last year, leading some shareholders to accuse them of insider trading. Walrath said last month she would vacate a ruling she made last year allowing an insider-trading lawsuit against the hedge funds to proceed if she approved the bankruptcy plan.

More recently—last week—another group of hedge funds threatened to derail the bankruptcy plan, voting against it before switching their votes following an agreement giving them a stake in the reinsurance company that will emerge from the WaMu bankruptcy.

"I have never seen a case where the shareholders have been so active," Walrath said.

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