Lehman Preferred Series "J" Preferred (fka LEHJQ)

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Lehman derivative disputes must be mediated-NY court
Wed Aug 26, 2009 1:46pm EDT


NEW YORK, Aug 26 (Reuters) - A New York bankruptcy court on Wednesday ordered that banks and other firms involved in disputes over the value of derivatives held with Lehman Brothers enter into compulsory mediation in an effort to reduce the number of disagreements brought before the court.

Lehman's (LEHMQ.PK) creditors committee is seeking payments on derivatives it believes it is owed money on, and has sought to begin mediation as an initial means of resolving any differences between the investment bank and its counterparties over the value of the contracts.

Derivatives take their value from underlying assets, which can include debt, equity or commodities. The contracts can be used to hedge or bet on changes in the underlying assets.

Lehman said it has around 900,000 derivative transactions with hundreds of firms, and that many of the contracts that have the potential for recovery in favor of Lehman are in dispute, or are expected to be.

Judge James Peck of the U.S. Bankruptcy Court for the Southern District of New York agreed that mediation should be implemented in order to reduce the number of cases before the court.

Peck also ruled, however, that more time should be spent refining the dispute resolution procedures after around 50 of Lehman's trade counterparties lodged various objections to the resolution proposals.

Lawyers representing Lehman's creditors argued that similar procedures were successful in closing out derivatives held with failed energy trading firm Enron Corp when the company went bankrupt in 2001, and yielded $600 million for creditors. (Reporting by Karen Brettell; Editing by Gary Crosse))