Sullivan & Cromwell is not a mediocre law firm. It has already told its client that the court won't be moved on those releases.
What really matters is how badly JPM and the FDIC want to get a chance to talk with equity. The downside in not exiting the GSA is they can't negotiate with equity, so they really can't move forward.
There is NO downside to exiting, because as I've said many, many times, any party can simply modify the plan to include a distribution to equity and cram down bondholders. The process doesn't start from the ground up. JPM and the FDIC with the EC can file their own wrap as WMI has no power over the process any longer, and, believe me, it would be confirmed.
At this stage of the game, it’s more about wisdom and strategy.
The debtors’ strategy is simple: taking full advantage of the court’s favorable opinion on GSA (“fair and reasonable”), especially, the “modification clause” to resurrect the denied Plan by the court (The court: the Debtors’ Plan is not confirmable unless the deficiencies explained herein are corrected. The debtors’ response: modifying the Plan consistent with the court opinions). As EC described “the conclusion [by the court] that the Global Settlement is fair and reasonable means that the structure, value allocations and other elements of the Global Settlement are approved.” (EC Appeal, p.2) This is significant. I shall correct myself that the court levered the playing field “a little” for all parties. Based on EC assessment, the debtors still have the up-hand regarding GSA argument. It remains to be seen how, and whether or not the debtors are able to reconcile the Release issue and other “deficiencies”, we are certainly in one of the most dangerous, critical, and complicated moments of Wamu saga.
EC’s counter punches are two folds.
Punch One: Examination of settlement noteholders for insider trading. As I said before, the court followed the shareholder’s leads (Nate Thoma), and EC followed the court’s leads. Since both the court and EC are in agreement on the seriousness of insider trading allegations, it will be hard for the court not to grant EC request for investigations. The impact of the issue is far beyond the interest rate (FJR vs. contract rate). As we all know, EC exhibited in its Closing Argument that the creditors (four hedge funds) dictated the terms of GSA for the debtors. If allegations of insider trading are proved, plus the court acknowledged creditors/debtors’ scheme of (intentional) undervaluation of WMRRC, as well as stripping off retail shareholders their rights in the reorganized company, we have a perfect case of creditors/debtors acting in “bad faith” and committing “willful misconducts” in framing the contents and distribution structure of GSA. Contrary to the court’s rejection of EC position, we therefore have another chance to further prove that “The debtors failed to consider the interests of all stakeholders” as EC argued in the Closing Argument.
It’s in this context, I thought that JPMC and FDIC may have to distance themselves from creditors/debtors group somewhat. It doesn’t look good to be seen in public to be associated with insider trading and other frauds (even though they are frauds themselves). However, it’s no guarantee that either JPMC or FDIC will withdraw from GSA coalition just yet since the debtors/GSA/POR has been so good and beneficiary to both parties as we all know so well. You need strong catalysts to break up the coalition.
Punch Two: EC appeal to Third Circuit in regard to the court opinions. The appeal strikes at the heart of the court opinions in favor of GSA, or “a fundamental legal issue that underlies the Court’s determination that the GSA is fair and reasonable: can such a determination be made when the record contains no evidence of any legal analysis of the merits of the claims being settled?” (EC Appeal, p.3) In layperson’s language, can the court basically take over and make the arguments for the debtors, instead of demanding the debtors to show the burden of prove? The appeal’s immediate goal is to strike down the GSA. It has broad implications too.
Since the core issue is whether or not the court can “fill the evidentiary gap” and substitute its own legal analysis for the debtors’ “burden of prove”, it will inevitably touch upon the issue of debtors’ attorney-client privilege and work products, and therefore likely draw people’s attention to the legal analysis of the debtors counsel. The higher court (Third Circuit) will not, and does not have to hold discussion on the merits of the debtors’ legal evaluation of disputed claims if it receives the appeal, the attention received on the merits of claims between the debtors, JPMC, and FDIC, even slightly, however, will sound off the alarm of “Exposure” among the GSA parties. How concerned JPMC and FDIC will be? I don’t know. Can such potential exposure add value to Releases? I don’t know but certainly hope so. As we now know by FCIC report at least, not everyone in the responsible positions is happy with FDIC’s abrupt seizure of Wamu. Even FCIC is still holding off its assessment of FDIC’s handling of Wamu resolution pending ongoing litigation results. We want the higher court and wider audience to hear us, our opponents don’t. This is a first step.
In_summary,_we_are_still_in_an_extremely_dangerous_si tuation._The_danger_is_clear_and_present._The_EC_recogn izes_the_dange_,_and_treats_it_seriously_and_accordingl y._I_don’t_bet_my_hope_on_any_“magic”_date._EC_is_doing _the_right_thing._Hit_the_opponents,_hit_them_hard,_and _hit_them_on_where_they_can_feel_the_pain_and_danger_to o._That_being_said,_it’s_still_early_to_assess_the_impa ct_of_EC_counter_attacks._First_of_all,_we_have_to_over come_the_immediate_hurdle_to_win_approval_of_EC_motions _on_February_8._Until_then,_it’s_murky.