Lehman Brothers seeks to assume swap, force MEG to pay $9.69 million

By Alice Popovici

New York, Sept. 1 - Lehman Brothers Holdings, Inc. requested authorization to assume an interest rate swap master agreement, a move that would require MEG Energy Corp. to immediately pay the $9.69 million it owes the company, plus accrued interest, according to a Monday filing with the U.S. Bankruptcy Court for the Southern District of New York.

The sum owed Lehman Brothers, plus approximately $665,000 in default interest accrued to date, represents four payments MEG has missed on each of the four transactions the companies entered into in 2006.

MEG refused to pay Lehman because it alleged a breach of provisions in their agreement occurred when Lehman filed for Chapter 11 bankruptcy on Sept. 15, 2008, according to the motion.

But Lehman states that MEG "cannot enforce defaults after assumption," citing policies in section 365 of the bankruptcy code, which "mandate the conclusion that the debtor's act of assumption effectively acts to cure any default that arises from the breach of ipso facto clauses."

"In short, like many other counterparties to derivative contracts with the [company], MEG is refusing to 'pay to play,'" the motion states.

A hearing has been scheduled for Sept. 15.

New York-based Lehman Brothers Holdings Inc. was the fourth-largest investment bank in the United States. The company filed for bankruptcy on Sept. 15, 2008. Its Chapter 11 case number is 08-13555.

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