Bloomberg News

Lehman Wins Approval for Plan to Boost First Creditor Payout

February 24, 2012

(Updates with judge’s ruling in second paragraph.)

Feb. 22 (Bloomberg) -- Lehman Brothers Holdings Inc., the defunct investment bank that filed for bankruptcy more than three years ago, won court approval for a plan that may boost its first payment to creditors by about $2.8 billion.

U.S. Bankruptcy Judge James Peck in Manhattan signed off on a proposal today to limit cash reserves for disputed claims, which Lehman said will free up cash and allow increased initial distributions to creditors with approved claims.

Peck at a court hearing described Lehman’s plan as an “appropriate balancing” of the needs of creditors whose claims have been allowed and those that are fighting with Lehman over claims.

Lehman filed the biggest bankruptcy in U.S. history in 2008 and won court approval in December for its plan to pay creditors. 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 about $370 billion.

Peck approved a plan to use non-cash assets for a portion of reserves for disputed claims. The aggregate amount of disputed claims for which Lehman must maintain reserves is about $112 billion, the firm said in a court filing.

Cash Reserves

Lehman had argued that it would be “inequitable” to delay distributions to creditors that reached settlements over claims because of the need to retain “unusually large” cash reserves for disputed claims. The request was supported by the committee representing unsecured creditors.

“We believe there is no risk that a creditor will bear permanent risk of nonpayment,” Dennis Dunne, a lawyer for the group, said at the hearing.

Lehman estimates that allowed claims of general unsecured creditors total more than $280 billion, according to a court filing. It said it could distribute $11.9 billion to $14.7 billion of cash initially, depending on cash reserves for disputed claims.

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

--With assistance from Linda Sandler in New York. Editors: Mary Romano, Andrew Dunn

To contact the reporter on this story: David McLaughlin in New York at dmclaughlin9@bloomberg.net.

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


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