Refco Capital Markets securities holders, general unsecured creditors reach plan support settlement

By Caroline Salls

Pittsburgh, June 30 - Refco, Inc.'s Chapter 11 trustee requested court approval of an agreement between securities holders and general unsecured creditors of Refco Capital Markets Ltd. that resolves litigation and creditor disputes and is expected to be implemented through a plan of reorganization, according to a Friday filing with the U.S. Bankruptcy Court for the Southern District of New York.

According to the motion, the agreement removes the most substantial hurdle in the path to a global resolution for Refco's estates, and resolves litigation and creditor disputes at the Refco Capital Markets level "that might otherwise have resulted in the freefall conversion of RCM's Chapter 11 case" to a case under Chapter 7 bankruptcy.

The motion said this freefall conversion would have resulted in "protracted and multi-faceted litigation with attendant spiraling costs and expenses, substantially increased uncertainties and increased risks to the value of the RCM estate available for distribution to creditors."

Specifically, the agreement will resolve a dispute regarding the allocation of assets of the Refco Capital Markets estate and establish an agreed mechanism for allocating those assets among holders of securities customer claims, holders of FX/unsecured claims and Leuthold, whether as part of a global plan of reorganization or as part of either a stand-alone plan for Refco Capital Markets.

Second, the agreement will defer attempts to convert the Chapter 11 case to a case in Chapter 7, and, if the settlement is not consummated under Chapter 11, allow the parties to convert to Chapter 7 on a more-efficient, significantly pre-planned basis.

Third, the agreement will implement a request for a continued stay of costly and time-consuming estate property litigation and dismiss litigation if settlement becomes fully effective.

Under the agreement, substantially all existing assets of Refco Capital Markets other than potential intercompany and third-party recoveries are divided under an agreed formula among holders of securities customer claims, FX/unsecured claims and Leuthold.

The distributions to holders of securities customer claims will be in excess of 70% of their claims, and to holders of general unsecured claims in excess of 26% of their claims.

Leuthold will receive its metals or the proceeds of sale of the metals and, for any of its remaining claims, share in distributions as a holder of FX/unsecured claims.

Refco Capital Markets creditors will then share recoveries on intercompany and third-party claims, with provisions that adjust the sharing mechanism according to actual values of the securities portfolio at the time of the initial distribution, and the actual amounts of allowed claims from time to time.

The agreement provides an initial distribution to holders of FX/unsecured claims of $221 million from derived from an absolute distribution of $97.4 million and an advance from customer property in the RCM estate of $123.6 million.

That advance is repaid with 12% interest through the waterfall arrangements that govern subsequent distribution of proceeds of additional property, and "is the linchpin of the settlement because it provides up front to the holders of FX/unsecured claims a portion of assets that the parties believe would likely be distributed to holders of securities customer claims" if the case were converted to Chapter 7."

The advance will be returned, plus interest, out of contingent recoveries from additional property.

Also under the agreement, the Refco Capital Markets Rogers funds' claims will be treated as securities customers' claims or FX/unsecured claims.

A hearing is scheduled for Aug. 10.

Refco, a New York-based commodities brokerage company, filed for bankruptcy on Oct. 17, 2005. Its Chapter 11 case number is 05-60006.

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