UPDATE:Lehman Files New Creditor Payback Plan With Broader Support

Lehman Brothers Holdings Inc. (LEHMQ) early Wednesday filed a revised plan to repay creditors that has much broader support than its previous proposals and could result in other parties withdrawing their rival plans and a final deal 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 debt, 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.

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.

"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. "Major constituencies" in the case have reached an "agreement in principle with Lehman," Lehman added.

The keys to the compromise are that certain percentages of the money owed to creditors of the subsidiaries of Lehman will be reallocated to creditors of the parent, and creditors of the subsidiaries have agreed to a cap on some of their claims.

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 of the parent company at the expense of creditors of the subsidiaries. A key benefit to those bondholders in the new compromise would be the faster timetable that a consensual plan would provide. Sources said creditors could start receiving recoveries during the first quarter of 2012.

Creditors of Lehman's many subsidiaries, some of whom are large 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 would have received recoveries in the low 20s under a prior Lehman plan, although the new plan calls for a cap on how much they can claim.

A group led by Goldman Sachs Group Inc. (GS) and distressed-investment firm Silver Point Capital had spearheaded a third plan that argued subsidiaries' creditors 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. Their proposal would have only paid senior bondholders of the Lehman parent about 16 cents on the dollar.

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 they handled intercompany claims between various Lehman businesses. Some creditors would have been 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.

For instance, creditors of a Dutch subsidiary with $34.5 billion worth of intercompany claims would have previously been able to assert a claim for double that amount. Under the compromise, those creditors have accepted a cap on their claims that comes out to about 1.77 times the $34.5 billion, rather than double.

The new Lehman plan also proposes corporate governance changes that would allow representation on Lehman's board of directors from several of the creditor constituencies, including the ad hoc bondholders. One person familiar with the plan negotiations said the board of directors issue is far from finalized, as all parties are concerned with who will manage Lehman's assets after its plan is confirmed.

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. A hearing on whether creditors can vote on Lehman's plan had been scheduled for July 20, but will probably pushed back to late August, according to one of the people familiar with the negotiations.

(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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