A New York hedge-fund manager wants J.P. Morgan Chase & Co. 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. 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.
