MF Global - Magic Fingers w/ Reserve Funds?

From Reorg Research:

Early Tuesday Morning James W. Giddens, the Trustee for the liquidation of M.F.
Global Inc, filed a notice of motion for an order allowing certain claims, capping maximum allowable amounts establishing a final reserve for secured, administrative and priority claims, capping the maximum allowable amounts and establishing a reserve for the unsecured claims. The motion also seeks authorization to make a 100% final distribution on all allowed priority claims and an interim distribution to unsecured claims.

The motion would establish an Oct. 1 record date. The trustee has previously targeted a "fall 2014" interim distribution date.

According to the motion, $608 million is being reserved by Giddens for unsecured claims, with $263 million anticipated to be sent to unsecureds on the first interim distribution. The motion also includes many pages of exhibits with capped and allowed claim amounts.

There are assets of $988 million in the estate, and "with the proposed capped amounts, the aggregate amount of the Priority Claims to reserve against would be $70 million and the aggregate amount of general unsecured claims would be $3,433 million," according to the motion. Admin expenses are "conservatively" estimated at $250 million. A footnote does detail that the $988 million, which includes $937 million of cash, does not include amounts "as a result of the provisions of the Dooley assignment agreement previously approved by the Court."

Assuming the $608 million reserved amount for unsecured claims holds and the aggregate amount of such claims is indeed $3.433 billion, this would mean a 17.7% distribution to unsecured claims for the first distribution. As discussed below, however, these aggregate claim amounts assume all remaining claims are allowed in their asserted amounts. Recoveries could also come in better for unsecured claims if the $250 million estimate of admin expenses is more than actual expenses.

According to the last interim report by Giddens, the remaining drivers of upside recovery to the estate, according to the report, are "the class action claims being pursued on the Trustee's behalf by the customer representatives and the Dooley insurance action." Both cases are in or entering the discovery phase. The Dooley insurance action was recently assigned to MF Global Finance USA Inc., "for over $100 million." Giddens notes that MF Global Finance USA Inc. is "by far the estate's largest creditor."

Giddens argues that establishing reserves for priority and unsecured claims is necessary
in making general estate distributions and that if appropriate reserves are established, distributions to holders of the allowed priority and unsecured claims are appropriate.

The motion includes a general history of the trustee's claims estimation and reconciliation efforts. As of June 12, the Trustee had received 7,666 general creditor claims, including claims originally filed on customer claim forms but subsequently reclassified as general creditor claims, asserting over $22 billion in claims, according to the motion.

The Trustee received approximately 1,308 priority claims, asserting a total amount
of approximately $15.082 billion. Giddens has secured the withdrawal of 27 claims, allowed or settled 177 claims, and reduced and allowed, reclassified and allowed, or expunged 1,003 claims. As of Aug. 22, 100 unresolved priority claims remained, including 80 claims with objections currently pending before the court.

Out of these overall numbers, 1,208 of priority claims have been resolved as of Aug. 22, and as a result, the allowed priority claims total is current $31.9 million. A remaining 101 remaining priority claims assert $37.7 million, all of which is being reserved against - resulting in the $70 million reserve for priority claims.

Regarding unsecured claims, Giddens received approximately 6,638 unsecured general creditor claims, totaling approximately $8.2 billion. Of these claims, the Trustee has secured the withdrawal of 126 claims, allowed or settled 641 claims, and reduced and allowed, reclassified and allowed, or expunged 5,487 claims. As of Aug. 22, 384 unresolved unsecured claims remained, including 207 claims with objections currently pending before the court.

Out of these overall numbers, 6,254 of the unsecured claims have been resolved as of Aug. 22, and as a result the allowed unsecured claims total $1.314 billion. The 385 remaining unsecured claims assert $2.118 billion as entitled to be treated as allowed unsecured claims. Taken together these result in the $3.433 billion aggregate amount of remaining claims cited by the trustee.

A hearing has been scheduled for Sept. 18 at 10:00 a.m. EDT with objections due by Sept. 11.