Lehman seeks OK of deal to reduce $7.68 billion of JPMorgan claims

By Caroline Salls

Pittsburgh, Feb. 25 - Lehman Brothers Holdings, Inc. requested court approval of a collateral disposition agreement with JPMorgan Chase Bank, NA in an effort to transfer management of some illiquid securities held as collateral by JPMorgan, according to a Wednesday filing with the U.S. Bankruptcy Court for the Southern District of New York.

Lehman said the agreement gives it the means to recover and administer the illiquid securities totaling in billions of dollars.

Specifically, Lehman said JPMorgan has filed more than $29 billion of claims against it as of October 2008. After taking into account the application of collateral to date, including the receipt of proceeds from the disposition of collateral, Lehman said the current outstanding amount of JPMorgan claims is about $7.68 billion.

After the application of the remaining liquid collateral under the agreement, Lehman said the balance of the claims will be about $557 million, consisting of assets that are mostly illiquid in the current economic environment or whose sale at this time would bring substantially diminished returns.

The company said the agreement also allows JPMorgan to apply cash and cash equivalents it is currently holding to provisionally satisfy its claims against Lehman, while reserving the rights of all parties related to the propriety of the claims.

Upon a further cash payment to JPMorgan by Lehman in the amount of the unpaid claims balance remaining after application of the cash and cash equivalents, JPMorgan will transfer the illiquid securities to some of the Lehman debtors.

Under the agreement:

• JPMorgan will reduce its remaining total claim balance to $557 million from $7.68 billion through application of the cash collateral consisting of cash, cash proceeds of securities and money market funds all posted by the Lehman debtors and Lehman Brothers Inc.;

• JPMorgan will transfer the remaining illiquid collateral to Lehman Brothers Holdings;

• Lehman Brothers Holdings will make a one-time $557 million cash payment to JPMorgan; and

• Lehman Brothers Holdings will step into JPMorgan's shoes as a secured creditor of Lehman Brothers Inc. and the guaranteed debtors as a subrogee of JPMorgan.

A hearing is scheduled for March 17.

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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