By Telis Demos in New York
The warring creditorsof the Lehman Brothers bankruptcy, the biggest corporate failure in history, have reached a settlement on a final pay-out plan.
According to people familiar with the discussions, a bankruptcy proposal filed early on Wednesday represents an agreed plan between several creditor groups, including Paulson & Co, a large Lehman bondholder, and Goldman Sachs, a derivatives counterparty to Lehman.
The final plan is expected to result in slightly lower recoveries for bond-holders, while banks and distressed-debt hedge funds will receive slightly more of Lehman?s $65bn in recovered assets available to be paid against some $325bn in claims.
If the plan is agreed and finalised, it would represent a resolution for Lehman?s bankruptcy in just under three years since its collapse in September 2008, which has already generated more than $2bn in legal and professional fees.
?That is a long time for a typical Chapter 11 proceeding, but this is the biggest one that?s ever been,? said Lynn LoPucki, a finance professor at UCLA.
Under the plan, senior bondholders, with $83bn in claims, will receive 21.1 cents on the dollar, down from 21.4 cents. But their aggressive stance, including a competing planfiled last year by Paulson and asset managers Pimco and Calpers, has already won much more than the 17.4 cent recovery initially proposed in 2009.
That improvement had frustrated bank creditors, such as Goldman and Deutsche Bank, which were counterparties on derivatives with Lehman and said their claims were fully guaranteed by Lehman. They filed their own competing planearlier this year.
The settlement plan still reallocates some of that guarantee money to bondholders, but gives more to banks. Recovery on the bulk of derivatives claims, which are about $22bn, would increase from 34 cents on the dollar to 39 cents on the dollar.
Distressed debt hedge funds that had aligned with the banks, including Silver Point and Mount Kellet, both run by Goldman alumni, would also see their recoveries in entities such as Lehman Brothers Treasury, with roughly $30bn in claims, rise from 26 cents on the dollar to 28 cents on the dollar.
Creditors are expected to file supportive motions before Thursday, the final deadline for plan filings.
Those reached declined to comment ahead of the deadline.
With the Lehman estate?s backing, the plan is expected to win the support of the US bankruptcy court. A hearing is set for the end of August.
? The Financial Times Limited 2011