Downey settlement allowing $623.42 million in claims backed by court

By Kali Hays

New York, July 7 – Downey Financial Corp.’s Chapter 7 trustee, Matthew A. Cantor, obtained approval of a litigation settlement with Downey Savings and Loan Association, FA receiver the Federal Deposit Insurance Corp., according to a Tuesday order from the U.S. Bankruptcy Court for the District of Delaware.

Under the settlement, the FDIC will have an allowed $418.22 million general unsecured claim, and indenture trustee Wilmington Trust Co. will have a $205.2 million general unsecured claim against Downey.

As previously reported, the Downey bankruptcy estate’s assets will be divided into two sub-estates under the agreement, including a tax assets sub-estate and a non-tax assets sub-estate.

The FDIC’s claim will be subordinated in the non-tax asset estate for distribution purposes solely to implement the terms of the settlement.

Cantor said the settlement resolves all remaining disputes between the parties and clears the way for a final resolution of Downey’s case, which will include a meaningful distribution to unsecured creditors.

The settlement is subject to approval by the FDIC’s board of directors and the receipt by the indenture trustee and/or funding agent of any formal consents or directions.

Newport Beach, Calif.-based Downey Financial filed for bankruptcy on Nov. 26, 2008. Its Chapter 7 case number is 08-13041.

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