Yesterday’s EC pleadings were very interesting. Its one-page joinder to WMI’s opposition to the TPS motion for stay pending appeal says volumes. Containing no points and authorities and no arguments it provided the most nominal support for WMI’s opposition, which is a protective measure if it should have to revive its own appeal later before Judge Sleet or the Third Circuit.
Make no mistake: the EC understands that the TPS mean to get Judge Sleet or the Third Circuit to stay confirmation and adjudicate the appeals. If they succeed, the court will look to consolidate the appeals and EC will be forced by shareholders to argue its appeal of the fair and reasonable ruling. This action would NOT violate the settlement because it provides for the appeal to be abandoned AFTER confirmation. Well, since the plan will be stayed, advancing the appeal – even to a ruling – will in no way breach the settlement. By saying nothing in its joinder the EC won’t have to eat words later.
We have to keep in mind that the EC understands perfectly well that the TPS are well-funded and will persist regardless of what anyone else in the case is doing. JPM knows this, too, but it has reached the limits of its power over WMI and the EC to stop TPS. There’s simply nothing WMI can do to stop the TPS. JPM, on the other hand, could stop the TPS by offering to assume them. This would cost JPM no more than $300MM per year in interest, which is far less than the $500MM per year or so it gets from the $10B in mortgages to which the securities were once linked. (If TPS accepted, it would drop its appeal and that would free Judge Walrath to vacate her opinion regarding the TPS securities.) JPM does not want to do this, however, preferring to fight and risk the reversal of the TPS decision (which could cost it the $10B in mortgages or their equivalent), AND the F and R decision, which would certainly be decided simultaneously. Both cases have Stern connections, and the Third Circuit would probably love to adjudicate them. By offering to assume the TPS JPM would take away their incentive to litigate as the assumption of the securities would be a risk-free proposition for TPS, for value that could be sold on the open market for $4B face. It speaks to JPM’s rapacity that it is willing to risk losing $10B by fighting an appeal or, worse, having the F and R decision reversed as then it would be exposed to much more liability.
My guess is JPM is in wait and see mode. If TPS succeed in getting the stay, then they’ll probably re-evaluate their options, and a settlement with TPS benefits WMI’s ‘real’ equity, Ps, Ks, and Qs.
The EC’s other pleading in response to TPS’ move the re-classify itself, was a bombshell. By stating unequivocally that the court can reduce commons share from 28.5% to 0%, the EC all but admits that it has abandoned common to the court’s mercy. Of course, that it had done so was obvious in the plan itself (and, frankly, I was shocked common didn’t explode when the plan was released), but any pretense of support for commons ended with that filing.
Next week the fun begins. TPS’ motion for stay will be denied and it will march to Judge Sleet, who will have received shareholder letters and JPM will come out with all its firepower to defeat TPS’ petition. If TPS doesn’t succeed there, it will move to the Third Circuit. It is fighting for at least $4B and at most $10B, and has deep pockets for litigation. We’re along for the ride whether the EC publicly supports TPS or not, and stand to gain big if TPS succeeds.
