We have been getting a number of calls about the American Home Mortgage, Inc. bankruptcy, and since I don’t enjoy giving people bad news, I crafted this post to inform you of the worst of it.
On November 30, 2010, the bankruptcy Plan of American Home Mortgage became effective. The Plan is a thrilling page turner filled with Legal terminology and weighing in at over one hundred pages. A copy of the Plan is available here.
And now for the unhappy news: American Home Mortgage had insufficient assets to repay all of its debts. Under the Plan, holders of subordinated claims receive no distributions. Similarly, holders of equity will not be receiving any distributions. Most other classes of debt holders will receive a fraction of what they are owed, but nearly everyone is taking a haircut as a result of the failure of American Home Mortgage.
It is unfortunate, but in almost every bankruptcy, equity holders lose their entire investment. In some situations, however, equity holders are able to get concessions from lenders. This can occur when the lenders are willing to pay the equity holders to settle potential causes of action. While it is very uncommon, this can happen when the equity holders form a committee and hire experienced bankruptcy counsel to negotiate with the lenders to obtain concessions.