Payouts of ABFS funds to noteholders are close

Certain investors in American Business Financial Services Inc. (ABFS) could soon receive their first payouts from the bankruptcy liquidation of the Philadelphia subprime lender, which failed six years ago.

The proposed payments total $16.3 million to thousands of senior collateralized noteholders who were owed $100.8 million when ABFS filed for bankruptcy protection in January 2005, according to documents filed this month in the Court of Chancery in Delaware.

All together, ABFS owed $600 million to noteholders.

The $16.3 million now available for distribution to investors is less than the $17.5 million - including $3.5 million for anticipated future expenses - being used to pay lawyers and others representing two firms overseeing notes issued in December 2003 and June 2004.

That does not sit well with Mike Dybas of Illinois, who said he had been following the ABFS bankruptcy for his father-in-law, who is 86 and has Alzheimer's disease.

It's "a feeling of helplessness," Dybas said Monday.

Those fees were subject to a court fight in fall 2009, when the Chapter 7 trustee responsible for liquidating ABFS objected to the amounts Law Debenture Trust Co. of New York and Wells Fargo Bank, the companies administering the collateralized ABFS securities, planned to deduct from money available to pay investors.

George L. Miller, the liquidation trustee, urged the Bankruptcy Court to review the Law Debenture and Wells Fargo fees, then estimated at $12.5 million, to determine if they were "reasonable," as required by contract.

A bankruptcy judge in Wilmington ruled in December 2009 that objections to the fees would have to be made in state court, where Miller has no standing.

By contrast, Miller's own attorney, John T. Carroll III, of the Wilmington office of Cozen O'Connor, has billed the bankruptcy estate $2.3 million since May 2005. Miller's Center City accounting firm, Miller Coffey Tate L.L.P., has billed the estate $5.9 million. Miller said that, as trustee, he personally would not be paid until the case closed - next year or in 2013, he estimated.

The bulk of the money available for distribution to senior collateralized noteholders came from a $100 million settlement in 2009 of a lawsuit against investment banks that helped ABFS package $3.5 billion worth of subprime loans into securities.

Law Debenture Trust and Wells Fargo received $27.8 million from that settlement. An additional $30 million went to two local law firms that represented Miller in the lawsuit against the investment banks.

The remainder, plus an additional $36.5 million from other settlements, is frozen because of a legal fight between Miller and Greenwich Capital Financial Products Inc., which provided $500 million of debtor-in-possession financing to ABFS before the Chapter 11 bankruptcy was converted into a Chapter 7 liquidation in May 2005.

A hearing on the proposed distribution of the $16.3 million has been scheduled for Feb. 24 in Chancery Court in Wilmington. Objections must be filed by Feb. 10.