Lehman Brothers Financial SA (LEHNQ)

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Lehman Eyes Sale of Unsecured Claim Against Brokerage Unit
Funds Would Help Pay Off Billions Holding Company Owes to Customers, Creditors

By Tom Corrigan and @[e-mail]
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Aug. 28, 2014 4:57 p.m. ET


Lehman Brothers Holdings Inc. said Thursday that it may seek to sell off some of a multibillion-dollar bankruptcy claim that the failed investment bank holds against its U.S. brokerage arm.

In a statement, the Lehman parent company and its units said it "intends to explore monetization opportunities" related to the unsecured claims, but the company said there was no guarantee it would follow through with the sale.

Lehman's holding company owns a $6.9 billion unsecured creditor claim against its U.S. brokerage arm. Most of the brokerage business was sold to Barclays PLC following Lehman's September 2008 collapse. The proposed sale of the claim would raise funds to pay off the billions the holding company owes its customers and other creditors.

In a milestone settlement last year with its U.S. brokerage and its European subsidiary, Lehman's New York-based holding company received a $14 billion unsecured creditor claim against Lehman Brothers Inc.

The proposed Lehman sale turns a spotlight on the little-noticed world of bankruptcy-claims trading, where billions of dollars in claims trade each month as distressed-debt investors buy up claims from creditors on the cheap and then jockey for a position in the order to receive payment.

In a series of sales last year, Lehman sold off $7.1 billion in unsecured claims against the brokerage and netted $3.2 billion, court documents show, for a recovery of about 45 cents on the dollar. Among the buyers last year of Lehman's claims against the brokerage were funds affiliated with Goldman Sachs, Deutsche Bank and Third Avenue among others.

The Lehman claims hitting the block this time around could fetch about 40 cents on the dollar, according to one trader, the amount reflecting the brokerage's setback in its legal fight with Barclays over the assets included in the 2008 sale.

Representatives for Lehman Brothers Holdings Inc. and Lehman Brothers Inc. declined to comment Thursday. Tiffany Galvin, a spokeswoman for Goldman Sachs, declined to comment Thursday on the possibility of another sale, as did Deutsche Bank and Third Avenue.

The remains of Lehman's brokerage unit are being wound down separately from Lehman's holding company. Customer claims get paid before creditors under the law covering failed broker-dealers, the 1970 Securities Investor Protection Act.

Customers of the U.S. brokerage received about $92.3 billion almost immediately after Lehman collapsed. In all, the brokerage has paid more than $105 billion to customers.

With customers paid in full, James Giddens, the trustee winding down the brokerage is now seeking to pay Lehman Brothers Inc.'s creditors. Recently he sought approval to distribute $4.6 billion to those creditors-among them pensions funds, investment firms, former employees and the holding company—soon as next month. That payment represents a recovery of about 17% of total unsecured claims against the brokerage.

All told, more than 2,600 unsecured claims totaling about $20 billion have been allowed against the brokerage and another $6.8 billion in claims are still unresolved.

Meanwhile, Lehman's holding company has already paid a total of $57.1 billion to unsecured creditors excluding other Lehman subsidiaries. Most creditors of the parent company and its units are expected to recover between 25 and 35 cents on the dollar.

Lehman's holding company officially exited from bankruptcy in 2012, when a reorganized company emerged, overseen by a new board of directors. The Lehman estate is still winding down and selling off its remaining holdings, a process that is expected to continue for several more years.

http://online.wsj.com/articles/lehman-eyes-sale-of-unsecured-claim-against-brokerage-unit-1409259475