Bankrupt holding company Washington Mutual Inc. (WMI) is looking to sell its interests in 10 venture capital funds after being penalised for not meeting a $700,000 capital call from one of the funds.
The company, which formerly owned Washington Mutual Bank, has asked bankruptcy court for an auction of the fund interests. The federal government seized Washington Mutual in September as it teetered on the edge of collapse, and JPMorgan subsequently assumed control of the bank, but not the holding company.
Washington Mutual Inc.’s subsidiary, WMI Investment, has committed $36.5 million to 10 funds, and has to date contributed $27.8 million, according to court documents.
The funds are ARCH Venture Fund V; Arrowpath eCommerce Fund II; Digital Partners III; Financial Technology Ventures; Financial Technology Ventures II; Financial Technology Ventures III; Madrona Venture Fund I-A; Madrona Venture Fund III; Maveron Equity Partners 2000 and Northwest Venture Partners III.
WMI is in default on its fund commitment to Financial Technology Ventures III, which issued a $700,000 capital call on 1 October 2008. The fund is run by San Francisco-based FTVentures, a growth capital firm that invests in business services and software companies. The firm recently committed $30 million to Mu Sigma, a provider of analytical decision support services.
WMI committed $10 million to the fund in March 2007, and has so far contributed $3.3 million. WMI has not fulfilled the capital request from FTVentures and is being penalised with an 18 percent default interest accrual on the amount of the capital call, according to court documents. In the event of continuing failure to meet the capital request, WMI will forfeit 25 percent and 50 percent of contributed capital on 6 December 2008, and 6 February 2009, respectively.
WMI has notified Financial Technology Ventures that the accrual of default interest on the capital request is a violation of bankruptcy law and should not be applied.
ARCH Venture Fund also issued a $30,000 capital call on 29 September, but has yet to inform WMI that it is in default, the company said. WMI committed $3 million to the fund in 2000 and has contributed about $2.9 million.
“While [WMI] believes that the imposition of default interest. . . is a violation of [bankruptcy law], out of an abundance of caution and to avoid any disputes, [WMI] is requesting approval of the sales procedure,” the company said.
Judge Mary Walrath, of the bankruptcy court in Wilmington, Delaware, must approve the auction process of the fund interests. A hearing is set for 16 December.