(Changes eighth paragraph to add creditors’ claims against MF
finance unit)
* Judge approves outline of plan to pay back creditors
* Plan would pay former customers in full
* JPMorgan argues other creditors should get more
By Nick Brown
NEW YORK, Feb 19 (Reuters) – A bankruptcy judge on Tuesday
approved the outline of a plan by liquidators and creditors of
failed brokerage MF Global to repay the company’s
creditors, a key step toward ending its $40 billion Chapter 11
bankruptcy.
At a hearing in U.S. Bankruptcy Court in Manhattan, Judge
Martin Glenn green-lighted the outline, which was amended to
address minor concerns Glenn had raised in refusing to approve
an earlier version of the outline last week.
MF Global, which had been led by former New Jersey Gov. Jon
Corzine, is liquidating after declaring bankruptcy in October
2011. Investors ran for the hills after the company revealed
exposure to risky European sovereign debt.
The case became a political firestorm when regulators
discovered an estimated $1.6 billion hole in the trading
accounts of the broker’s trading customers, later determined to
be caused by the improper use of customer money to plug
liquidity gaps.
Corzine resigned shortly after the bankruptcy, and has
denied any wrongdoing.
Under the payout plan, the company’s trader customers would
be repaid in full. Louis Freeh, the trustee liquidating the MF
Global parent, has agreed if necessary to support an effort by
customers’ trustee James Giddens to allocate some of the
broker’s general estate assets to customer accounts to ensure
their full recovery.
Unsecured creditors of the MF Global parent are projected to
recover between 13.4 cents and 39 cents on the dollar, while
creditors of its finance unit will receive between 14.7 cents
and 34 cents on the dollar.
Creditors under a $1.2 billion loan, including JPMorgan
Chase & Co, have claims against both the MF parent and
its finance unit. They could recover as much as 39 cents on the
dollar from the parent, and up to another 34 cents on the dollar
from the finance unit, according to the plan’s projections.
The latest version of the plan includes arguments, raised by
JPMorgan earlier this month, that creditors may be getting
undercut. A portion of the loan facility was transferred from
MF’s parent to its finance unit prior to bankruptcy, resulting
in the finance unit owing money to both the holding company and
the lenders. Eliminating that duplication could mean more
recovery for the lenders, JPMorgan has argued.
Tuesday’s approval paves the way for creditors to vote on
the plan itself. Assuming they support it, the plan would go
before Judge Glenn for final confirmation in April.
The proposal already has the support of a majority of
unsecured creditors. It was put forth by Freeh in conjunction
with a group of hedge fund creditors, led by Silver Point
Capital, Knighthead Capital and Cyrus Capital Partners, who hold
more than 65 percent of the company’s $2.2 billion in unsecured
claims.
The case is In re MF Global Holdings Ltd, U.S. Bankruptcy
Court, Southern District of New York, No. 11-15059.
(Reporting by Nick Brown; Editing by Nick Zieminski)
