Lehman gets court OK on modified procedures to handle derivative contracts

By Rebecca Melvin

New York, Dec. 16 - Lehman Brothers Holdings Inc.'s request to set up procedures for the settlement or assumption and assignment of pre-petition derivative contracts was approved by the U.S. Bankruptcy Court for the Southern District of New York on Tuesday.

The procedures deal with about 930,000 derivatives contracts. Most have been terminated but some are still outstanding, Lehman counsel told the court.

Under the procedures, Lehman will assess as-yet-uncalculated payments for the terminated contracts and will be able to sell the still-outstanding contracts to third parties without having to appear before the court for approval on an individual basis.

No estimated value was attached to the transactions, but they total in the billions of dollars for the terminated contracts and another "billions of dollars" for the open contracts, Lehman counsel said.

Judge James Peck indicated he would approve the order that had been modified to resolve objections right up until the time of the hearing.

Of 101 objections filed in response to the procedures, 65 objections were resolved subsequent to modifications, or rewording, of the procedures. The remaining 36 objections were adjourned to hearing dates set for Dec. 22 and Jan. 14.

An objection from the official committee of unsecured creditors was resolved, as was one from South Mississippi Electric Power Association and the Coast Electric Power Association.

Lehman pointed out that about 100,000 counterparties were served with notice of the procedures motion.

Counsel for one objecting counterparty asked if an evidentiary hearing could be requested when his objection was heard Jan. 14. And Peck said it was perfectly appropriate if people have unresolved objections to call for evidentiary hearing.

For his part, Peck was pleased with the material changes to the procedures that resolved many objections and provided a "market for managing" these contracts.

Lehman intends to continue to work on settlements with existing objectors and won't attempt to assume or reject contracts with those parties in the interim before the next hearings.

Among the objectors were many municipal entities, including FPL Energy Power Marketing Inc. and Florida Power & Light Co., City and County of Denver and Metropolitan Transportation Authority, and banks, including Royal Bank America, Deutsche Bank, Citigroup and Banc of America.

New York-based Lehman Brothers Holdings was the fourth-largest U.S. investment bank. The company filed for bankruptcy on Sept. 15, and its Chapter 11 case number is 08-13555.

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