Recently, the US Bankruptcy Court for the District of Delaware denied the request of Washington Mutual and WMI Investment Corp. (collectively the Debtors) for confirmation of the Modified Sixth Amended Joint Plain of Affiliated Debtors. Among a number of issues, the Bankruptcy Court determined that the valuation of a captive reinsurance subsidiary (WM Mortgage Reinsurance Company – currently in run-off), which would serve as the most valuable asset of the proposed reorganized debtor was flawed. The Court valued the company at the high end of the range the debtors’ expert had concluded, assuming no new business would be generated or acquisitions made. The Court noted that the expert used an incorrect figure for the weighted average cost of capital, which had fallen by 5-10 percentage points, increasing the value of the company. Further, the expert gave little weight to the value of precedent transactions, accorded the most weight to discounted cash flow analysis, and failed to apply the proper historical (or current) returns on equity for similar businesses. For these and a number of other reasons, the Court denied confirmation of the plan, and directed the parties to mediation. In re: Washington Mutual, Inc., No. 08-12229 (D. Del. Bankr. Sept. 13, 2011).
This post written by John Black.