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Lehman Brothers and Wamu Inc.
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Lehman Brothers and Wamu Inc.
--Settlement seen as part of 'momentum building' for support of new plan
By Joseph Checkler
Of DOW JONES DAILY BANKRUPTCY REVIEW
NEW YORK (Dow Jones)--Lehman Brothers Holdings Inc. (LEHMQ) has struck a deal with State Street Bank & Trust Co. over a commercial-loan dispute that calls for State Street to reduce its claim against Lehman by more than a third in exchange for backing Lehman's new plan to pay back creditors.
In a Friday filing with U.S. Bankruptcy Court in Manhattan, Lehman said State Street has agreed to slash the claim--to $400 million from $638 million--against Lehman. It stemmed from what State Street called a breach of contract over real-estate loan-repurchase agreements.
Lehman's commercial-paper unit entered into a repurchase agreement on commercial loans with State Street, but stopped making required payments in the days before its September 2008 bankruptcy filing. State Street sued Lehman, saying that Lehman had defaulted on its obligations.
Lehman depended on repurchase agreements--short-term collateral-backed credit lines commonly called "repos"--to fund its business.
Daniel Ehrmann, co-head of Lehman's derivatives business, told Dow Jones the settlement with State Street is another case of "momentum building" that Lehman has been working on since filing its first amended plan earlier this year, a plan that was updated again last month.
"More and more players are going to fall into place," said Ehrmann, pointing out a wide-ranging derivatives settlement offer with 13 of its largest derivatives counterparties, eight of which have already agreed.
A hearing on the State Street settlement is set for Aug. 17. A State Street spokeswoman didn't immediately respond to a message seeking comment.
Lehman's new plan could pay creditors up to $65 billion and gives those owed money from Lehman's various subsidiaries larger recoveries than they would have received under its original plan, but defines how much they can claim.
Holders of senior bonds of the Lehman parent company would receive slightly less--about 21.1 cents on the dollar compared to 21.4 cents in a prior plan--but benefit from what should be a quicker payback. Those bondholders also get some money that will be reallocated from the pool of money being paid back from the Lehman subsidiaries.
A group including hedge-fund manager Paulson & Co., which represents about $20 billion mostly in those bonds, had filed a competing proposal, as had a group led by Goldman Sachs Group Inc. (GS) and distressed-investment firm Silver Point Capital. Those groups now support Lehman's new plan.
Support isn't universal, however. Last week, distressed hedge-fund manager Centerbridge Credit Advisors LLC said it intends to oppose Lehman's new plan, calling it "the product of horse trading principally among the most vocal objectors" to Lehman's prior plan.
Lehman's collapse in September 2008 marked the largest U.S. bankruptcy case ever filed. Since then, a team of hundreds of bankruptcy professionals under the direction of restructuring firm Alvarez & Marsal has managed Lehman's assets, which include real-estate holdings, corporate debt and derivatives, for the benefit of creditors.
Lehman estimated earlier this year that it would likely have $322 billion in allowed claims against the estate, with $272 billion from the parent company and about $50 billion from its various subsidiaries.
