By Telis Demos in New York
The majority of creditors voted to approve Lehman Brothers? pay-out plan, paving the way for the biggest bankruptcy in history to begin parcelling out cash to its creditors.
The estate of the defunct US investment bank said on Tuesday that 71,553 creditors, or 95 per cent of creditors who voted, approved the plan, representing $405bn out of $450bn of asserted claims. As required by US law for approval of a bankruptcy pay-out plan, they also represented the majority in every class of creditor.
The next step is a hearing in front of James Peck, US bankruptcy court judge, on December 6. If he approves the plan, pay-outs could begin in the first quarter of next year.
Lehman in September 2008 filed for bankruptcy amid a collapse in global financial markets, with $639bn in assets against $1,200bn in initial claims.
Through negotiations over the past three years, costing more than $2bn in legal and professional fees, the estate has whittled the bankruptcy claims down to an anticipated $350bn after disputes are settled. It expects to gather $60bn in assets which it will use to pay the claims.
?It has taken Herculean effort by many people to reach this point,? said Bryan Marsal, Lehman?s chief executive and a partner at the restructuring firm Alvarez & Marsal.
Groups representing bondholders such as the hedge fund Paulson & Co and Pimco, manager of the world?s largest bond fund, argued vigorously with banks and other creditors over relative shares of the pay-outs.
The estate eventually settled those disputes by transferring to bondholders some of the guaranteed payments to subsidiary creditors, which included banks such as Goldman Sachs that were derivatives counterparties.
It also won settlements from foreign affiliates, such as Germany?s Bankhaus and the UK?s Lehman Brothers International (Europe), by repurchasing assets or agreeing to guarantee some claims.
Lehman?s benchmark bonds were trading at 24.5 cents on the dollar on Tuesday, above the 21.1 cent pay-out agreed in the settlement plan, reflecting hopes for stronger-than-expected asset recovery.
The court filings on Tuesday also said that the estate had settled a dispute with Deutsche Bank, which had asked the court to reclassify $2.4bn in claims related to derivatives. The estate also agreed to give banks who were derivatives counterparties with Lehman the right to withhold funds if they believed Lehman still owed them money.
Lori Fife, partner at Weil Gotshal, Lehman?s bankruptcy attorney, said in a statement: ?The global settlements should avoid contentious litigation and allow for accelerated distributions to creditors.?
Lehman is still engaged in separate litigation with JPMorgan Chase, its clearing agent.
? The Financial Times Limited 2011