Lehman Files New Creditor Payback Plan With Broader Support
June 29 2011 - 3:34AM
Dow Jones News
Lehman Brothers Holdings Inc. (LEHMQ) early Wednesday filed a
revised creditor payback plan that has much broader support from
major creditors than Lehman's previous proposals, and could result
in competing parties withdrawing their rival plans and a final plan
being confirmed by the court before the end of the year.
In a filing with the U.S. Bankruptcy Court in Manhattan, Lehman
unveiled a proposal that most major objectors deem fair enough,
according to people familiar with the weeks of tense negotiations
that led to the filing of the new plan.
In all, the plan has the support of creditors representing more
than $100 billion worth of Lehman's creditors, according to a
person familiar with the matter. That number includes most of the
largest creditors in the case, the person said, and most notably
represents a compromise between major creditors of both the Lehman
parent company and its various subsidiaries.
"The recoveries to creditors of each debtor under this plan are
based upon a global resolution of complex plan issues," Lehman said
in its filing, adding that the plan could still change down the
road.
The crux of the compromise is that certain percentages of the
money owed to creditors of the subsidiaries of Lehman will be
reallocated to creditors of the parent.
Holders of bonds of the Lehman parent company would receive
slightly less--about 21.1 cents on the dollar--compared with 21.4
cents in a prior plan. A group including hedge fund manager Paulson
& Co., which represents about $20 billion mostly in those
bonds, had filed its own proposal late last year that pushes for a
24% recovery for senior unsecured creditors at the expense of
subsidiary creditors.
Creditors of Lehman's many subsidiaries, some of whom are the
big banks, still stand to recover more than those of the parent.
Some creditors of Lehman's Specialty Finance Unit - the heart of
the failed investment bank's derivatives business - will receive
more than 30 cents on the dollar. Those creditors, many of which
are the big banks, would have received recoveries in the low 20s
under a prior Lehman plan.
A group led by Goldman Sachs Group Inc. (GS) and distressed
investment firm Silver Point Capital had spearheaded a third plan
that argued subsidiaries were getting hurt at the hands of
creditors of the parent, but according to two people familiar with
the matter, Goldman and Silver Point are on board with the new
proposal.
Some banks that are creditors of Lehman still have problems with
the new plan, one person said.
One of the Paulson-led group's main problems with both the
Lehman plan and the plan proposed by the Goldman/Silver Point group
was the way it handled intercompany claims between various Lehman
businesses. Some creditors would be receiving a double recovery, or
double-dip, the Paulson group argued. Lehman's new plan offers a
compromise on that issue, even though the banks still fare well
compared with many other creditors.
Lehman's collapse in September 2008 marked the largest U.S.
bankruptcy case ever filed. Since then, a team of hundreds of
bankruptcy professionals under the direction of restructuring firm
Alvarez & Marsal has managed Lehman's assets--which include
real-estate holdings, corporate debt and derivatives--for the
benefit of creditors.
Lehman estimated earlier this year that it would likely have
$322 billion in allowed claims against the estate, with $272
billion from the parent company and about $50 billion from its
various subsidiaries. The bank increased creditors' expected net
recovery by $2.6 billion from the $57.5 billion it estimated in a
September court presentation.
A judge earlier this year said the three competing plans could
be considered on the same timetable, although it appears the
Goldman and Paulson-led plans may soon be withdrawn. Currently, a
hearing on whether creditors can vote on Lehman's plan is scheduled
for July 20.
(Dow Jones Daily Bankruptcy Review covers news about distressed
companies and those under bankruptcy protection.)
-By Joseph Checkler, Dow Jones Newswires; 212-416-2152;
joseph.checkler@dowjones.com
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