Lehman Lacks Consensus for $65 Billion Plan, Centerbridge Says

Date: Monday, July 18, 2011
Author: Linda Sandler,Bloomberg.net

Lehman Brothers Holdings Inc. (LEHMQ) won’t win creditors’ approval for its $65 billion plan to liquidate its assets in bankruptcy, hedge fund Centerbridge Capital Partners LLC said in a court filing.

“Numerous” other creditors may join Centerbridge in voting against Lehman’s plan, a “flawed construct” that “subsidizes” some groups at others’ expense, it said. Anchorage Capital Group LLC said it was backing Centerbridge, according to a filing yesterday in U.S. Bankruptcy Court in Manhattan.

Lehman shares trimmed earlier losses after Centerbridge’s opposition was reported, and closed down 5.8 percent at 4.9 cents in over-the-counter trading in New York yesterday.

Lehman said this month that creditors holding more than $100 billion in claims gave their support to the company’s latest payout plan, which allots more money to a group including Goldman Sachs Group Inc. (GS) and less to bondholders including Paulson & Co. The two rival groups signed onto the revised plan after battling to control the largest corporate liquidation in U.S. history.

Centerbridge made its filing “to advise the court that despite the purported consensus supporting the debtors’ plan, Centerbridge and it believes numerous other creditors do not believe that the new plan is confirmable” and will be opposing the confirmation, the hedge fund said.

Final Claims

Lehman Chief Executive Officer Bryan Marsal didn’t immediately respond to an e-mail seeking comment. Spokeswoman Kimberly Macleod declined to comment. Marsal has estimated that final claims against the company will exceed $300 billion.

Lehman’s compromise proposal was “a product of horse trading” among investors who were noisiest in objecting to the defunct firm’s earlier payout formulas, Centerbridge said in its filing. To win them over, Lehman was “siphoning value away from other creditors,” Centerbridge said.

Holders of claims against Lehman’s commercial paper unit were among the losers being forced to subsidize noisier creditors, according to Centerbridge. The hedge fund said it had Lehman’s permission to conduct research on these issues.

Discovery Process

Yesterday’s filings were a response to Lehman’s move to put on hold a so-called discovery process that would allow creditors to learn more about the structure of the company before voting on the payout scheme. Liquidators for Lehman’s Swiss affiliate said yesterday they and other parties “may have a need for targeted discovery in connection with the debtors’ plan.” So did Danske Bank A/S.

Judge James Peck yesterday signed his final orders denying Lehman’s effort to recoup an alleged $11 billion “windfall” made by Barclays Plc (BARC) on the purchase of the defunct firm’s North American business. The winner in last year’s bench trial was the remnants of Lehman’s brokerage, which is being separately liquidated. London-based Barclays yesterday appealed Peck’s ruling that it return $2 billion in margin assets to the brokerage.

“We look forward to presenting Barclays’ arguments on appeal,” said Barclays’ lawyer Jonathan Schiller of Boies, Schiller & Flexner LLP, in an e-mail.

Lehman aims to confirm its plan this year and start distributing a “significant” amount of its $21 billion in available cash shortly after, Lehman lawyer Lori Fife told Bloomberg on July 1.

State Street Suit

Separately, Lehman settled a lawsuit yesterday with State Street Bank & Trust Co., capping its recovery on a $638 million claim against Lehman and its commercial paper unit at $400 million. State Street, like Goldman Sachs, had opposed Lehman’s earlier plan to shift more money to bondholders.

Once the world’s fourth-biggest investment bank, Lehman filed for bankruptcy on Sept. 15, 2008, with assets of $639 billion. It failed partly because of too much leverage, which it tried to hide, and risky real estate bets, said a bankruptcy examiner.

The case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporter on this story: {Linda Sandler} in New York at lsandler@bloomberg.net.

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net.