MF Global Holdings Ltd. (MFGLQ) bankruptcy trustee Louis Freeh
struck a deal with J.P. Morgan Chase & Co. (JPM) in their
dispute over more than $900 million in intercompany claims,
removing one of the key roadblocks to the holding company's Chapter
11 liquidation plan.
Under the settlement, some $275 million of the more than $1.8
billion that MF Global's holding company says a company finance
subsidiary owes it will be subordinated, that is ranked below the
$1.2 billion owed to a lending group led by J.P. Morgan.
"The settlement is in the best interest of creditors (as) it
removes a major hurdle to confirmation of the plan," said Mr. Freeh
in a statement Tuesday.
The bank had opposed MF Global's Chapter 11 plan, saying it
improperly characterized $928 million the holding company loaned to
a subsidiary--the financing arm of the brokerage called MF Global
Finance USA Inc.--in the days before the bankruptcy.
A group of hedge funds that own about two-thirds of MF Global's
unsecured debt have put forward a Chapter 11 plan that's backed by
Mr. Freeh. Under that plan, general unsecured creditors of the
holding company were to recover 13 cents to 39 cent on the dollar
for the claims.
Unsecured creditors of the finance subsidiary were to recover
between 14 cents and 34 cents on the dollar under the plan.
Whether the deal will boost the recoveries for unsecured
creditors of the financing arm subsidiary remains to be seen. Mr.
Freeh's team said the settlement will result in "a slightly
modified distribution range" for unsecured creditors of the holding
company.
A representative for Mr. Freeh couldn't be reached for comment.
A J.P. Morgan spokeswoman wasn't available for comment.
The plan filed by the hedge funds 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 the brokerage's customers, the holding company's
creditors aren't expected to recover every cent of their money.
Mr. Freeh, a former director of the Federal Bureau of
Investigation who is overseeing the holding company's Chapter 11
case, joined the hedge funds last month in calling for approval of
the liquidation plan.
Judge Martin Glenn is set to consider approval of the plan at an
April 5 confirmation hearing in U.S. Bankruptcy Court in
Manhattan.
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 was led by Jon Corzine, a former co-chairman of
Goldman Sachs who later became a U.S. senator and then governor of
New Jersey. The firm collapsed in October 2011 when customers
panicked over the New York firm's large bets on European debt. Its
collapse into bankruptcy exposed a $1.6 billion shortfall in U.S.
customer accounts.
MF Global "s top executives, including Mr. Corzine, have denied
any wrongdoing in connection with that shortfall. While investors
have filed a number of civil suits against the firm's top brass, no
one has been charged with criminal wrongdoing.
Write to Patrick Fitzgerald at patrick.fitzgerald@dowjones.com.
Follow him on Twitter @WSJBankruptcy
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