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FDIC to take haircut on TLGP claims under failed-bank parent's Chapter 11 plan

The former parent of the failed Seattle-based fileda Chapter 11 liquidation plan that would partially reimburse the FDIC for lossesassociated with past participation in the Temporary Liquidity Guarantee Program.

Washington FirstFinancial Group Inc. reported nearly $12.6 million in total assets relativeto $35.2 million in total liabilities, of which the FDIC's $34.3 million unsecured,nonpriority claim constitutes the lion's share. The company filed for bankruptcy protection under the terms of an Aprilsettlement with the FDIC.

Under the TLGP, the FDIC guaranteed noninterest-bearing transactionaccounts held at participating depository institutions from October 2008 throughDecember 2009. It also guaranteed to the earlier of the stated maturity date orDec. 31, 2012, certain newly issued senior unsecured debt issued by participatingentities between October 2008 and October 2009.

The FDIC reported the collection of $1.2 billion in fees underthe deposit-guarantee component of the program relative to estimated losses on failuresof $2.1 billion. Under the debt guarantee, according to issuer-reported information,the FDIC collected $10.36 billion in fees and surcharges for $618.41 billion indebt issued by program participants. The agency said it suffered $153 million indefault-related losses, of which $113 million arose from banks that failed in 2011and had outstanding notes under the program.

Washington First Financial issued 203 unsecured promissory notesin the aggregate amount of approximately $90.6 million as part of the TLPG's debt-guaranteeprogram. The FDIC reported having generated approximately $809,000 in fees fromthose transactions. The company said it had paid all but 53 of those notes in fullthrough the time of the bank unit's failurein June 2010.

"Following the closure of [Washington First InternationalBank], [Washington First Financial] was unable to continue making any payments underthe remaining notes, defaulted in its payments of principal and interest due tothe noteholders, and the FDIC was forced to repay the balance of the GuaranteedNotes to the noteholders pursuant to the FDIC Guarantee," Washington FirstFinancial explained in the disclosure statement for its Chapter 11 plan.

The FDIC data listed Washington First International Bank as theissuer of a single promissory note under the debt guarantee program in the amountof $1 million. That contrasts with the scenario involving at least two other failureswhere it had been the depository institutions — as opposed to their holding companies— that had issued significant sums of debt under the program. A review of FDIC recordsfinds that Evansville, Ind.-based IntegraBank NA and Valdosta, Ga.-based ParkAvenue Bank issued $50 million and $20 million, respectively, priorto their failures in July 2011and April 2011.

In both cases, the FDIC told holders of covered notes that ithad designated a Deutsche Bank subsidiary as its duly authorized representativefor the purpose of making claims and taking other permitted or required actionsunder the debt-guarantee program.

The FDIC's $34.3 million Washington First Financial claim consistssolely of outstanding principal, according to the settlement. The agreement includedvarious provisions dealing with the timing and administration of the bankruptcycase, including as it pertains to Washington First Financial's establishment ofa liquidating trust for the benefit of all of the company's creditors. The liquidatingtrustee will be tasked under terms of the settlement of completing, within two yearsof the Chapter 11 plan's confirmation date, the liquidation of the company's assets,which include less than $2 million in real property, $5.4 million of interests inreal property — of which $1 million is subject to secured claims — and $3.7 millionconsisting of loans and a "late-comers" fee.

A Washington First Financial analysis of projected best- andworst-case recoveries under a Chapter 7 liquidation places the estimated recoveriesto the FDIC in a range from $9 million to $10.7 million, or roughly 26 cents to31 cents on the dollar. To the extent that the Chapter 11 liquidating trustee'sfee is not greater than the Chapter 7 administrative fee the estate would incur,Washington First Financial said in the disclosure statement, claimants would receivevalue in the proposed Chapter 11 liquidation that is "not less than" theamount they would otherwise obtain in a Chapter 7 process.

The Chapter 11 plan remains subject to confirmation by the U.S.Bankruptcy Court for the Western District of Washington.