Lehman Brothers: court approves settlements with Ambac, Societe Generale; stays litigation

By Lisa Kerner

Charlotte, N.C., Oct. 20 - The court on Wednesday approved Lehman Brothers Holdings Inc.'s global claim settlement with Ambac Assurance Corp. and its settlement agreement with Societe Generale, New York Branch, according to an attorney familiar with the case.

As previously reported, Lehman asked the court to approve a settlement with Ambac, Ambac Credit Products, LLC and Ambac Financial Services, LLC under which the Ambac parties agreed to withdraw the more than $6.1 billion in claims they filed against Lehman.

Lehman and Ambac agreed to release each other from any liability under specified disputed pre-bankruptcy derivatives transactions.

The claims filed by Ambac are based on Lehman's alleged breach of obligations related to residential mortgage-backed securities transactions.

Settlement related to swaps

Lehman and Lehman Brothers Special Financing Inc. asked the court in September to approve a settlement agreement with Societe Generale relating to swap transactions with two special purpose entities: Libra CDO Ltd. and MKP Vela CBO, Ltd.

Under the settlement, Lehman Brothers Special Financing's estate is likely to recover at least $445 million and preserve the right to pursue the remaining assets in Libra and Vela against the other parties to the transactions, a prior court filing said.

As previously reported, the settlement would maximize Lehman Brothers Special Financing's opportunity to potentially recover up to an additional $72 million and put Lehman Brothers Special Financing in a better position to request that the Libra trustee promptly return approximately $128 million in collateral that the company posted with Libra before its bankruptcy filing.

Stay protects claims

Also on Wednesday, the court granted Lehman's request to stay prosecution of 50 avoidance actions it has filed. The stay would be in effect for nine months, the attorney said.

Lehman said it filed the avoidance actions seeking to recover or avoid significant transfers related to more than 230 transactions because the Bankruptcy Code's statute of limitations for filing these actions runs out as early as two years from the company's bankruptcy filing date.

The company said previously it has implemented several procedures as an alternative to litigation that have helped Lehman recover more than $200 million for its estates and settle disputes with 35 derivatives counterparties without litigation.

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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