Many Lehman Creditors Sign Agreements In Support Of New Plan

Lehman Brothers Holdings Inc. (LEHMQ) said Friday that former opponents of its bankruptcy plan have signed agreements in support of its new proposal, and agreed to hold off pursuing their rival plans.

In a statement, Lehman said creditors holding claims of more than $100 billion have signed agreements in favor of the new proposal filed early Wednesday, which settled arguments between creditors of Lehman's parent company and those of its various subsidiaries. Most of the creditors from the two groups filing rival plans were among the signers, Lehman said.

"Our goal from the outset has been a fair economic compromise that expedites administration of these cases and provides the best outcome for creditors," said Lehman Chief Executive Bryan Marsal, co-head of restructuring firm Alvarez & Marsal. "This Plan achieves that objective."

Lehman's new plan gives creditors of Lehman's various subsidiaries larger recoveries than they would have received under its original plan and places a cap and a floor on how much they can claim. Holders of senior bonds of the Lehman parent company would receive slightly less--about 21.1 cents on the dollar compared to 21.4 cents in a prior plan--but benefit from what should be a quicker payback. Those bondholders also get some money that will be reallocated from the pool of money being paid back from the Lehman subsidiaries.

A group including hedge-fund manager Paulson & Co., which represents about $20 billion mostly in those bonds, had filed a 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.

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 that proposal didn't set a cap or floor on how much they could 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. Their proposal would have only paid senior bondholders of the Lehman parent about 16 cents on the dollar.

Weil, Gotshal & Manges's Lori Fife, a Lehman lawyer, said in a statement that after the signing of the agreements, "Proponents of both alternative plans have agreed to stand down, litigation should be reduced and creditors should receive distributions earlier than expected."

Earlier this week, sources told Dow Jones that Lehman could now seek to have its plan confirmed by a court by the end of the year, with creditors beginning to recover money by the first quarter of 2012.

Lehman on Friday also announced a settlement with many banks over $9.6 billion in derivatives claims, about a month after announcing it had proposed a settlement to many of its big-bank counterparties. Daniel Ehrmann, co-head of Lehman's derivatives business, said the settlement will help avoid "costly and extensive litigation." Lehman said it is still seeking settlements with more banks over derivatives.

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 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.

(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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