Lehman Brothers Holdings Inc. (fka LEHMQ)

[jacktrades]

DJ UPDATE: Lehman Unveils Plan To Settle Derivatives Claims
31/05/2011 20:23 | Credit Suisse

--Lehman unveils proposed settlement of outstanding derivatives trades with more than a dozen of its largest counterparties

--Bankruptcy administrator says at least 10 of the big bank counterparties must sign off on the deal by June 30

--Lehman bonds active Tuesday morning, with approximately $111 million bonds changing hands, according to MarketAxess

(Adds details about outstanding derivatives claims, bankruptcy status and comments from banks, beginning in the seventh paragraph.)


By Patrick Fitzgerald and Matthieu Wirz
Of DOW JONES DAILY BANKRUPTCY REVIEW
Lehman Brothers Holdings Inc. is proposing a wide-ranging settlement of its outstanding derivatives trades with more than a dozen of its largest counterparties--including some of Wall Street's biggest banks--in a move the investment bank says could help speed the resolution of its Chapter 11 case, the largest and most complex in history.

In a framework unveiled Tuesday, Lehman proposed a settlement with 13 of its largest derivatives counterparties, the so-called "big bank counterparties." If accepted by the banks, the deal could erase billions of dollars in derivatives claims that have been filed against Lehman and its affiliates.

"This is a major step forward in resolving this important group of derivatives claims," said Daniel Ehrmann, managing director at Alvarez & Marsal, the firm that's unwinding Lehman under Chapter 11, in a statement Tuesday. Ehrmann is also the investment bank's head of international operations and co-head of derivatives. "We are hopeful that counterparties who have provided input to the framework will settle and look forward to announcing such progress soon," he said.

Lehman has been in talks for months with 13 of the banks holding the largest derivatives claims against its estate.

For the settlement to work, Lehman said at least 10 of the big bank counterparties must sign off on the deal by June 30. Absent that approval, Lehman said it will "vigorously" contest their derivative claims and intends "to seek to reduce such claims to amounts lower than the derivatives framework."

Among the big banks Lehman has sparred with over derivatives are Bank of America Corp. (BAC), Bank of New York Mellon Corp. (BK), Citigroup Inc. (C), Deutsche Bank (DB), Credit Suisse Group (CS) and J.P. Morgan Chase & Co. (JPM).

Representatives of Citi and BNY Mellon declined to comment on the settlement proposal. Bank of America, Deutsche Bank, Credit Suisse and J.P. Morgan representatives couldn't immediately comment.

In effect, Lehman is offering to settle the claims using a common valuation method in exchange for not seeking to reduce those claims in what undoubtedly would be lengthy and costly litigation.

According to Lehman's most recent Chapter 11 plan, about 30 financial institutions filed $22 billion in derivatives claims against Lehman and its derivatives subsidiary.

Big bank claims represent 48% of the remaining $40 billion in derivatives claims.

Lehman representatives have argued that figure is inflated. If the derivatives claims are calculated according to the new framework, Lehman estimated they would total about $10 billion.

News of the proposed settlement terms spurred activity in the bond market, where Lehman's bonds were the most actively traded high-yield securities Tuesday morning with approximately $111 million in bonds changing hands, according to MarketAxess. The bank's $4 billion 5.625% note due 2013 rose one-quarter of a cent to 26.50 cents on the dollar on volume of $78 million face amount.

Derivatives represent a significant source of cash for Lehman creditors still waiting to get paid more than two and a half years after the investment bank filed for bankruptcy protection on Sept. 15, 2008.

At the time of its collapse, Lehman was a party to or had guaranteed more than 10,000 derivative contracts representing more than 1.7 million transactions, according to court documents. The team working on unwinding the deals so far has recovered billions in cash for the benefit of creditors.

But resolving those claims has been slow and costly. Of the $45 billion in derivatives claims filed against Lehman and its affiliates, Lehman's administrators have settled just $5 billion, according a report filed earlier this year on the status of Lehman's bankruptcy-exit plan.

Two other groups of deep-pocketed creditors have floated their own Chapter 11 plans for Lehman. One group, led by Paulson & Co., has put forth a plan that provides greater recovery for holders of Lehman's parent-company debt.

A second group, whose members include Goldman Sachs Group Inc. (GS) and Morgan Stanley (MS), has put forth a plan that benefits holders of Lehman subsidiary debt. Judge James Peck of the U.S. Bankruptcy Court is set to consider all three plans at a preliminary hearing in June.

(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection)

-By Patrick Fitzgerald; Dow Jones Daily Bankruptcy Review; 202-862-3544; [e-mail]

(END) Dow Jones Newswires

May 31, 2011 15:23 ET (19:23 GMT)

Copyright (c) 2011 Dow Jones & Company, Inc.



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