Lehman Commodities Unit Creditors Fire Back At Ad Hoc Group

Creditors of a Lehman Brothers Holding Inc. (LEHMQ) commodities subsidiary became the latest to weigh in on whether the remnants of the investment bank should be treated like one giant pool of assets or smaller pieces to be divvied up among its subsidiaries.

In a bankruptcy court filing Thursday, the trustee representing a group of creditors in Lehman Brothers Commodity Services said arguments by the ad hoc creditors--a group that includes about a dozen hedge funds, pension funds and investment firms--"appear to be made on behalf of a few individual LBHI bondholders that are merely grabbing for a higher recovery for LBHI creditors at the expense of subsidiary creditors."

The creditors are arguing against an objection filed last month by an ad hoc group of bondholders of the Lehman parent company, claiming they aren't being treated fairly under the company's bankruptcy plan. Lehman's plan involves agreements with many of the parent company's subsidiaries, and the ad-hoc group has said that's at the expense of it and other holders of the holding company's debt.

The commodities creditors are represented by Bank of New York Mellon (BK), which serves as the trustee for holders of $700 million in bonds issued by a Georgia company, Main Street Natural Gas, Inc. The bonds were issued as part of a complex deal that called for Lehman Brothers Commodity Services to supply natural gas to various municipalities for 30 years in exchange for an upfront payment from Main Street.

But the holding company shut off the taps to the gas following its September 2008 bankruptcy filing and the Main Street bondholders, owed $700 million, are stuck with other creditors, waiting to see how much they can recover under Lehman's bankruptcy plan.

In the court filing, the creditors of the commodity business say the ad hoc bondholders' objection has merit in one respect: its call for more information. "Without additional information, it appears that the plan gives too much value to LBHI creditors" at the expense of holders of claims against the commodity subsidiary, the filing says.

The commodities unit's creditors are requesting information so they can "have adequate time to digest and analyze it" and to decide whether the plan is fair. The filing says that with some changes in the plan, recoveries for holders of the commodities subsidiary "could drastically improve."

While it supports more information disclosure, the group said it doesn't support what it calls the ad hoc group's "premature call for an intensive, trial-oriented protocol."

In April, the holding company unveiled details of its plan to pay back creditors some of the estimated $1 trillion in claims filed against Lehman, the largest bankruptcy case in the nation's history.

The plan includes a number of intercompany settlements and actually constitutes 23 distinct Chapter 11 plans applying to each of the Lehman units in bankruptcy. Allowed claims against a particular debtor will be paid from the assets of that debtor, with recoveries for unsecured creditors ranging from about 10 cents on the dollar to 44 cents.

For example, unsecured creditors of Lehman's commodities business will recover about 26 cents to 27 cents on the dollar while recoveries for general unsecured creditors of its holding company can expect recoveries on their claims of 10.4% to 14.7%.

That's a problem, according to the holding company's bondholders. They argue that creditors of the parent company stand to fare better if the various Lehman units are treated as a single company, or substantively consolidated, for purposes of the Chapter 11 distribution.

-By Joseph Checkler, Dow Jones Newswires; 212-416-2152; joseph.checkler@dowjones.com

(Patrick Fitzgerald contributed to this article.)

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