By Joseph Checkler
Of DOW JONES DAILY BANKRUPTCY REVIEW
Lehman Brothers Holdings Inc. (LEHMQ) has struck a deal with
Bank of America Corp. (BAC) and Merrill Lynch to reduce by more
than $4 billion their derivatives claims against the liquidating
investment bank, a key step for Lehman as it attempts to get its
creditor-payback plan approved by a court later this year.
In a Wednesday filing with the U.S. Bankruptcy Court in
Manhattan, Lehman also said Bank of America will drop an appeal of
a $500 million judgment against it and return $356 million for a
claim in that proceeding.
Merrill is a subsidiary of Bank of America.
Lehman said in another filing that it wants to create a $12
million incentive plan for the employees working to unwind
derivatives deal, a highly complex and important component of
Lehman's eventual liquidation.
Judge James Peck of U.S. Bankruptcy Court in Manhattan will hold
a hearing on the settlements and incentive proposal on Oct. 19.
The derivatives deals are the latest for Lehman, which in July
announced a settlement with many banks over $9.6 billion in
derivatives claims. Lehman said at the time that it would continue
seeking settlements with banks over the derivatives.
"Winding down a derivatives portfolio of the size and scale of
the Debtors' portfolio has been a monumental task never before
faced by a chapter 11 debtor," Lehman said in its Wednesday filing.
Lehman's biggest counterparties all have at least 5,000 derivatives
transactions each.
Lehman's newest creditor-payback proposal, filed in late June,
could pay creditors up to $65 billion and gives those owed money
from Lehman's various subsidiaries larger recoveries than they
would have received under its original plan, but defines how much
they can claim. The plan has much wider support than a prior one,
including from two groups that had filed competing proposals. Judge
Peck sent the plan to creditors for a vote last month, and has set
a Dec. 6 hearing to consider whether to confirm it.
Since the investment bank's collapse in September 2008, a team
of hundreds of bankruptcy professionals under the direction of
Alvarez & Marsal Inc. has managed Lehman's assets--which
include real-estate holdings, corporate debt and derivatives--for
the benefit of creditors.
Lehman's most estimates say 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.
(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