Lehman nearer bankruptcy exit, creditors sign on

October 26, 2011 8:18 AM4 commentsViews: 13

Lehman nearer bankruptcy exit, creditors sign on

Lehman Brothers Holdings Inc is moving closer to emerging from its record bankruptcy, and that its Chapter 11 reorganization is now backed by creditors who hold more than $160 billion of claims.

Lehman said it locked up nine new major settlement agreements, as it works toward what it hopes will be a smooth home stretch for the bankruptcy of what was once Wall Street’s No. 4 investment bank.

These settlements include six with affiliates such as Lehman Brothers International (Europe) and 56 British affiliates, and three with outside creditors such as Deutsche Bundesbank.

“The rapidly growing level of support for our plan demonstrates that our creditors understand the logic of the economic compromise we have proposed,” Lehman Chief Executive Bryan Marsal said on Wednesday.

Creditors have until November 4 to vote on the plan. U.S. Bankruptcy Judge James Peck in Manhattan is expected to consider whether to approve it at a December 6 hearing.

The plan would return about $65 billion to creditors holding $320 billion of claims. Payouts could be under way by early 2012 if Peck approves the plan.

In September, Lehman reached a settlement in principle with Lehman Brothers International (Europe).

Harvey Miller, a bankruptcy lawyer for Lehman, called that dispute the largest remaining obstacle to Lehman’s emergence from bankruptcy.

According to the settlement, made public late Tuesday, the European arm will retain a $1.01 billion unsecured claim against Lehman, and a $900 million unsecured claim against the Lehman Brothers Special Financing derivatives unit, among other claims.

Lehman had $639 billion of assets when it filed for protection from creditors on September 15, 2008, a filing that was a major trigger of that year’s global financial crisis.

The latest Chapter 11 plan was proposed in June, and Lehman has touted it as a compromise for diverse creditor groups.

Two groups — bondholders led by hedge fund Paulson & Co and the California Public Employees’ Retirement System pension fund, and derivatives creditors such as Goldman Sachs Group Inc and Morgan Stanley — had proposed their own bankruptcy plans before accepting Lehman’s compromise.

Asian affiliates holding about $20 billion of claims have also pledged support, as has Bank of America Corp , which agreed to reduce its derivatives and guarantee claims against Lehman by $7.5 billion.

The case is In re Lehman Brothers Holdings Inc, U.S. Bankruptcy Court, Southern District of New York, No. 08-13555.

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