Could be a big payout coming from Lehman eventually
May 03, 2013
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Lehman Brothers Holdings Inc . is asking a bankruptcy judge to slash bond insurer Syncora Guarantee Inc .'s $1.3 billion claim against the failed investment bank related to dodgy residential-mortgage loans backing securities sold to investors.
In a bankruptcy court filing Thursday, Lehman's lawyers asked a judge to reject part of Syncora's claim against the bank, arguing it would be unfair to the mortgage investors whose holdings it agreed to insure.
"Having participated in the transaction solely for the protection of investors, Syncora should not---and under the Bankruptcy Code cannot---seek to have this court give equal priority to its claim and the claims of the investors and directly compete with them for the limited assets of LBHI's estate," Lehman said in papers filed in U.S. Bankruptcy Court in New York.
At issue is a structured-finance transaction where Lehman bought mortgage loans made by GreenPoint Mortgage Funding Inc . and through a process of financial engineering transferred the loans to a trust which then issued notes backed by the
loans.
Syncora, the monoline insurance subsidiary of Syncora Holdings Ltd ., sold insurance to the trust, GreenPoint Mortgage Funding Trust 2006-HE1, that guaranteed payments of principal and interest to investors.
Many of the mortgage loans, made at the tail-end of the housing bubble, went into default, putting Syncora on the hook for the shortfall in payments to investors. To date, according to court papers, Syncora has paid out $510 million under the policy.
Like fellow bond insurers Ambac Financial Group Inc . and MBIA Inc ., Syncora has sued a number of big Wall Street banks for misrepresenting the quality of loans backing securities sold to investors.
In the Lehman case, Syncora says it was duped into insuring the notes based on misrepresentations about the quality of the loans. It is seeking $1.3 billion---the amount it has already paid plus what it may be required to pay to mortgage investors---from the Lehman estate for breach of contract over any defective loans transferred to the trust.
That claim, Lehman says, put the insurer "directly at odds" with investors, who want Lehman to repurchase 11,534 questionable GreenPoint loans that were securitized through the trust. The trustee, for the benefit of the investors, has filed a $647.6 million "putback" claim against Lehman.
Lehman is asking U.S. Bankruptcy Judge James Peck to reject the portion of Syncora's claims that it hasn't yet paid out as contingent. Any other amount that is allowed by the court, Lehman says, should be ranked behind the investors' claim in the order of repayment.
A Syncora representative wasn't immediately available for comment.
Lehman, once Wall Street's fourth-largest investment bank, collapsed in the largest bankruptcy in history in September 2008. Since then a team of bankruptcy professionals under the direction of Alvarez & Marsal Inc . has managed the holding company's assets. Lehman's still-considerable balance sheet includes commercial real estate, private-equity investments, loans and derivatives contracts.
Lehman's holding company officially exited Chapter 11 protection in March 2012, but its estate continues to wrangle with creditors over billions of dollars in disputed claims.
Lehman has already distributed more than $47 billion under its $67 billion Chapter 11 plan. A fourth distribution is scheduled for Sept. 30.
Write to Patrick Fitzgerald at patrick.fitzgerald@dowjones.com.
