WILMINGTON, Del., Oct 18 (Reuters) - Washington Mutual Inc said on Monday it would soon send a reorganization plan to creditors for a vote, a key step toward ending its bankruptcy two years after its bank collapsed.
The company expects to begin mailing documents explaining the plan on Friday, the company's lawyer, Brian Rosen of Weil, Gotshal & Manges, told a bankruptcy hearing.
Washington Mutual has reached a settlement with most of its creditors over how to divide more than $7 billion to pay the company's bills.
The company filed for bankruptcy after regulators seized its subsidiary, Washington Mutual Bank, and sold it to JPMorgan Chase & Co for $1.9 billion in the biggest bank failure in U.S. history.
Creditors at Monday's hearing said that all creditors that stand to receive a proposed payment from the company now support the reorganization, and presumably they will vote in favor.
Creditors have until Nov. 15 to vote.
Under the plan, Washington Mutual would sell $100 million of new stock to hedge funds that hold preferred securities. The company expects to emerge from Chapter 11 as an investment company and mortgage reinsurer worth less than $300 million.
Most of Washington Mutual's assets, which largely consist of cash, would be used to repay holders of the company's bonds and other debts.
However, the company still faces legal fights with creditors and others.
Shareholders do not support the settlement among creditors and are hoping that a Nov. 1 report from a court-appointed examiner will change the playing field in their favor, such as uncovering billions of dollars in previously hidden assets.
Their attorney said at Monday's hearing that the company does not disclose the "huge gift," potentially worth billions of dollars, in tax breaks that are being transferred to the reorganized company.
Rosen, Washington Mutual's attorney, said he would work with the shareholders' attorney to make those disclosures.
Shareholders are also hoping to use a scheduled Nov. 9 annual meeting to change the company's board of directors to gain leverage over the bankruptcy.
Other creditors also said at Monday's hearing that they will fight the company's proposed plan at the confirmation hearing, which the judge tentatively scheduled for Dec. 1.
Shares of Washington Mutual were down 2.8 percent at 17.6 cents in pink sheet trading.
The case is In re Washington Mutual Inc, U.S. Bankruptcy Court, District of Delaware, No. 08-12229.
(Reporting by Tom Hals, editing by Gerald E. McCormick)