By Joseph Checkler
A New York hedge-fund manager wants J.P. Morgan Chase & Co.
(JPM) to go after MF Global Holdings Ltd. over a $928 million
claim, echoing J.P. Morgan's sentiments that a win could improve
recoveries for creditors of an MF Global financing subsidiary.
In a Monday filing with the U.S. Bankruptcy Court in Manhattan,
Aurelius Capital Management said it supports J.P. Morgan's bid to
go after the MF Global parent company for $928 million in claims
related to an intercompany loan made before its bankruptcy filing
that appears to be counted double in a creditor payback proposal
currently on file with the court.
Aurelius also said in its filing that J.P. Morgan should be
granted the "standing" it's requesting so it can go after the
claims because MF Global itself would be conflicted. Aurelius holds
claims related to the $928 million loan.
"Aurelius believes that prosecution of the claims and defenses
that [the finance subsidiary] has against [MF Global] Holdings...is
necessary to avoid unduly prejudicing Finco's estate and its
creditors," it said.
J.P. Morgan is seeking permission to go after MF Global, saying
a group of hedge funds' proposed creditor-payback plan improperly
characterizes the $928 million the holding company loaned to a
subsidiary in the days before the bankruptcy.
J.P. Morgan says that amount is owed to the lenders, not the
holding company. But the proposed bankruptcy plan counts the $928
million owed by the subsidiary--the financing arm of the brokerage
called MF Global Finance USA Inc.--twice, lawyers for the bank have
said.
If the holding company's claim is successfully challenged, they
argued, the recovered cash could boost the recoveries for creditors
of the financing arm subsidiary. Aurelius agreed in its filing.
J.P. Morgan pressed its case over the claims at a hearing
earlier this month over whether creditors could vote on the
proposal, but Judge Martin Glenn said that was a matter for later
in the case. The hedge funds that filed the payback want to further
push back J.P. Morgan's request to sue over the claim, and a
hearing on the matter is set for early next month.
The hedge-fund managers, Silver Point Capital, Cyrus Capital
Partners LP and Knighthead Capital Management LLC, filed their
creditor payback proposal with the court in January. Those
creditors own about 65% of MF Global's $2.2 billion in unsecured
debt.
The plan proposes to pay back creditors of MF Global's general
estate within a year and could restore the accounts of brokerage
customers to 100% within months.
Unlike customers of MF Global's brokerage, however, the holding
company's creditors aren't expected to recover every cent of their
money.
The liquidation plan calls for holders of about $1 billion in MF
Global's unsecured bonds to recover between 12 cents and 42 cents
on the dollar for their claims under the plan, with those holding
claims on a $1.2 billion revolving loan getting more, between 27
cents and 80 cents on the dollar, though the group said those
figures were "conservative" estimates and that creditors may get
back more.
Voting on the plan is to be wrapped up by March 25 and a
confirmation hearing is slated for April 5.
Louis Freeh, a former director of the Federal Bureau of
Investigation who is overseeing the holding company's Chapter 11
case, has joined the hedge funds in calling for approval of the
liquidation plan.
The holding company's bankruptcy is being administered
separately from the liquidation of MF Global's main broker-dealer
business. That estate is being wound down by James W. Giddens under
the Securities Investor Protection Act, which governs the
liquidation of failed brokerage firms.
Late last year, Mr. Freeh, Mr. Giddens and a third official
liquidating MF Global's U.K. arm struck a wide-ranging deal
designed to get customers their money back more quickly and settle
disputes among themselves.
Individual customers of MF Global's broker-dealer have received
most of their money back through a series of bulk transfers
initiated by Mr. Giddens and approved by the court.
MF Global, led by former New Jersey governor and Goldman Sachs
Group Inc. (GS) Chairman and Chief Executive Jon S. Corzine,
collapsed in October 2011 when customers panicked over the New York
firm's large bets on European debt. The firm's collapse into
bankruptcy initially exposed a $1.6 billion shortfall in U.S.
customer accounts.
(Dow Jones Daily Bankruptcy Review covers news about distressed
companies and those under bankruptcy protection. Go to
http://dbr.dowjones.com)
-Patrick Fitzgerald in Washington contributed to this
article.
Write to Joseph Checkler at joseph.checkler@dowjones.com. Follow
him on Twitter at @JoeCheckler
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