Bloomberg News

Lehman Investors Traded $32 Billion of Firm’s Debt Last Year

January 31, 2012

(Updates with law professor’s comment in third paragraph.)

Jan. 27 (Bloomberg) -- Lehman Brothers Holdings Inc. investors traded $32.4 billion of the defunct investment bank’s debt last year as a hearing on its plan to pay creditors approached, according to a report.

Lehman won a judge’s approval in December, after more than three years in bankruptcy, for a $65 billion plan that would pay the average creditor less than 18 cents on the dollar in the next few years. Lehman debt accounted for most of the $36 billion in claims on bankrupt companies that changed hands last year, SecondMarket Holdings Inc. said in the report released today.

“Distressed-debt trading won’t go away after Lehman, but it will go back into the shadows,” said Stephen Lubben, a bankruptcy law professor at Seton Hall University in Newark, New Jersey, who writes articles about Lehman. “That’s probably where the traders prefer it, so they can benefit from the market’s inefficiencies.”

Goldman Sachs Group Inc., part of a group that proposed a competing plan to liquidate Lehman, sold $500 million of claims on the company and its commercial paper unit in December, according to court papers. Morgan Stanley sold about $320 million in claims on Lehman and its special-financing unit in October, court filings show.

The amounts refer to the face value of the claims, not the trading prices, which reflect payment prospects and aren’t disclosed. According to court filings yesterday, a Goldman Sachs unit sold about $190 million in claims on Lehman and Paulson Credit Opportunities Master Ltd. sold more than $100 million in Lehman debt.

Debt Doubles

Debt of newly bankrupt companies almost doubled last year after the filings of MF Global Holdings Ltd., the eighth-largest U.S. bankruptcy with debt of almost $40 billion, and AMR Corp., parent of American Airlines, said New York-based SecondMarket, which deals in illiquid securities. Jefferies & Co. bought a $713,391 claim on MF Global in November, according to a court filing.

December trades in Lehman debt exceeded $3.6 billion, out of $3.8 billion of total claims traded during the month, SecondMarket said.

Mesa Air Group Inc. was 2011’s second most actively traded company after Lehman, with $1.5 billion in claims changing hands. Lehman Brothers Inc., the remains of the brokerage unit, placed third, with $332 million of claims traded.

Once the world’s fourth-biggest investment bank, New York- based Lehman filed for bankruptcy in 2008 listing debt of $613 billion.

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

--Editors: Stephen Farr, Andrew Dunn

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


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