Bloomberg News

Lehman Says It May Give Creditors $8.1 Billion to $10.7 Billion

February 03, 2012

Jan. 28 (Bloomberg) -- Lehman Brothers Holdings Inc., which has said it’s planning to start paying creditors from its cash holdings, may initially distribute $8.1 billion to $10.7 billion.

This would be the first payment of about $56 billion in distributions that the company will make over the next few years, said Lehman, whose creditors range from Goldman Sachs Group Inc. to individual bondholders. The Lehman parent company would contribute an estimated $3.3 billion to $4.8 billion, and Lehman’s special financing unit might pay out $4.8 billion to $5.9 billion, the defunct investment bank said in a court filing yesterday.

The size of the payout will depend on a judge’s ruling on how Lehman must keep reserves for $112 billion in disputed claims, Lehman said. If forced to set aside available cash, the payout will be smaller. If the judge allows Lehman to hold back illiquid real estate and other non-cash assets as reserves, creditors with approved claims will get more money, it said.

“Holders of allowed claims will benefit from the time- value of having larger initial distributions,” Lehman said in its request to the judge to rule in its favor.

First Estimate

The filing contains Lehman’s first public estimate of the size of an initial payout planned for the first quarter. Lehman Chief Executive Officer Bryan Marsal has said he intends to raise $65 billion from the firm’s assets in the next few years, giving the average creditor less than 18 cents on the dollar for estimated claims of $370 billion.

Lehman, which in 2008 filed the biggest bankruptcy in U.S. history, said yesterday that gross proceeds from the liquidation, including cash on hand, will be about $63 billion, although as much as $7 billion would be used for expenses. It put cash on hand at $29 billion for Lehman and affiliates.

Lehman, which is currently fighting a claims battle with its Swiss affiliate and trustees for mortgage securities including a Citigroup Inc. unit, intends to cut disputed claims by almost half, to about $59 billion, it said.

Lehman’s $1 billion of 4.5 percent notes rose 0.25 cent to 27.5 cents on the dollar as of 4:04 p.m. yesterday in New York, according to Trace, the bond price reporting system of the Financial Industry Regulatory Authority. The notes have climbed from 26 cents since December and 23.4 cents in September.

Lehman and its affiliates had more than $27 billion of cash available on Dec. 31, although not all of it is available for use.

Liquidation Plan

Lehman, which won a bankruptcy judge’s approval in December for its liquidation plan, had earlier settled a fight with creditors by allotting more money to derivatives creditors such as Goldman Sachs and less to bondholders such as Paulson & Co. Both groups had proposed rival plans to pay Lehman’s debts.

Lehman’s senior bondholders would recover 21.1 cents on the dollar under the plan, compared with 21.4 cents under the firm’s previous proposal.

Claims on Lehman’s derivatives unit would be paid 27.9 cents to 32 cents, while commercial paper claims would get 48.4 cents to 55.7 cents, all based on each dollar of their investment, court papers show.

A guaranteed claim against Lehman’s special financing unit would get 27.9 cents on the dollar, plus more than 11 cents from a guarantee by the Lehman parent, or a total of about 39 cents.

Lehman has winnowed down claims from 67,000 filed originally demanding about $1.2 trillion from what was once the fourth-largest investment bank. It filed for bankruptcy with $613 billion in debt under former Chairman Richard Fuld.

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

--With assistance from Pierre Paulden in New York. Editors: John Pickering, David Rovella

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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