On December 21, 2012, the MF Global Inc. ('MFGI') trustee entered into two settlement agreements with affiliates that together, if both settlements are approved and effected, provide a roadmap for potential 100% recoveries for all MFGI's commodity customers. Such 100% recoveries would depend on an elimination of the commodity customer asset shortfall through a combination of recovery of assets from affiliates, offsetting of affiliate claims and reallocation of MFGI's proprietary assets. This would be positive for IBs for a number of reasons.
The trustee has entered into two separate settlement agreements, one between MFGI and MFGI's UK affiliate (the 'UK Agreement') and another between MFGI and a number of MFGI's domestic affiliates (the 'US Agreement'). The UK Agreement generally resolves a number of disputes and uncertainties, provides for the UK affiliate to pay MFGI between $500M and $600M, and offsets hundreds of millions of dollars in claims between MFGI and the UK affiliate. The effect of the payments and offsets would be to eliminate more than half of MFGI's commodity customer segregated and secured funds shortfall.
The US Agreement also resolves a number of potential disputes and uncertainties and in addition provides that the trustee of the domestic affiliates agrees in principal that the trustee will not dispute a reallocation of MFGI?s proprietary assets to make up the remaining amount of the shortfall so long as a number of conditions are met. MFGI currently has more than $1B in liquid proprietary assets, so such a reallocation should be sufficient to make up the remaining portion of the shortfall.
For IBs who introduced customers to MFGI, such a result should be positive. Many such IBs have general unsecured creditor ('GUC') claims against MFGI, and the MFGI trustee will begin the process of working toward a stipulation of each IB's GUC claim after the commodity customer claims are resolved. Thus, a sooner resolution of the commodity customer claims should mean the GUC claims are allowed sooner and likely also should mean that development of a plan that would ultimately lead to distributions occurs sooner. In addition, implementation of the settlement agreements would dismiss several pending court cases, which would avoid legal fees that would otherwise deplete the estate (and thus the assets backing the GUC claims). Obviously it will also be good for IBs to have their customers receive back all of their assets from MFGI, and public perception of investing in futures would be enhanced by 100% customer recoveries.
A range of uncertainties continue to exist regarding these settlements, including the need for judicial approval and satisfaction of many conditions. Nonetheless, they provide a potential route for full recovery for MFGI's commodity customers.
Neal R. Stevens
Of Counsel
nstevens@SRCattorneys.com
312 565.1045 tel (chi) | 212 334.7948 tel (nyc)
Schuyler, Roche & Crisham, P.C
www.SRCattorneys.com
