NEWS!
NEW YORK (Dow Jones)--A judge has approved the settlement of litigation over two 2008 credit default swap agreements by Lehman Brothers Holdings Inc. (LEHMQ) and Societe Generale SA (SCGLY, GLE.FR).
Judge James Peck of U.S. Bankruptcy Court in Manhattan earlier this week signed off on the settlement, which will put some $445 million into the coffers of Lehman's bankruptcy estate. Lehman had sued over the termination of two special-purpose vehicles created to invest in mortgage-backed securities, Libra CDO Ltd and MKP Vela CBO Ltd.
The settlement calls for SocGen, as the company is known, to immediately pay Lehman $370 million, and to guarantee $75 million more from the two entities. It also gives Lehman the flexibility to sue the vehicles later for an extra $72 million and possibly more in collateral held by them.
In 2008 Lehman bought credit protection from those two vehicles, meaning it was entitled to payments if they hit trouble. Societe Generale entered swap agreements with Libra and Vela too, and became responsible for making the payments to Lehman.
But Libra and Vela terminated the agreements after Lehman's Sept. 15, 2008 bankruptcy filing, a move Lehman challenged in a lawsuit eight months later. SocGen defended the suit.
A Lehman win would have entitled it to "substantial" payments from Libra and Vela, which SocGen would have probably had to help fund. A loss would have still entitled Lehman to pursue claims for $195 million in collateral held by the vehicles, Lehman said.
Under the deal Lehman can still pursue the termination claim against the vehicles. But if Lehman won it would have to hand over its interest in both swap agreements to Societe Generale to ensure that the investment vehicles couldn't ask for the French bank's help making required payments to Lehman.
(Jacqueline Palank contributed to this article.)
-By Joseph Checkler; Dow Jones Newswires; 212-416-2152; joseph.checkler@dowjones.com
(END) Dow Jones Newswires
October 22, 2010 14:43 ET (18:43 GMT)
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