Lehman files $722 million agreement with Bank of NY, Main Street

By Jim Witters

Wilmington, Del., Nov. 14 - Lehman Brothers Holdings Inc. requested court approval of a $722 million stipulation and agreement to resolve a dispute with the Bank of New York Trust Company, NA as indenture trustee for Main Street Natural Gas, Inc., according to documents filed Monday with the U.S. Bankruptcy Court for the Southern District of New York.

A hearing on the issue is scheduled for 10 a.m. ET on Dec. 14.

Nature of the claim

The dispute stemmed from an April 2008 gas-purchase agreement between Lehman Brothers Holdings and Lehman Brothers Commodity Services Inc. and Bank of New York Trust Co. as indenture trustee for Main Street Natural Gas, Inc., court documents state.

Main Street paid Lehman Brothers Commodity Services $681.6 million as a prepayment for the purchase of quantities of natural gas over a 30-years period. To finance the prepayment, Main Street issued project revenue bonds, according to court documents.

To hedge its exposure to movements in gas prices, Main Street entered into a swap agreement with Caylon Bank, London Branch. Main Street sold the natural gas it bought from Lehman to the city of Tallahassee, the Municipal Gas Authority of Georgia and the Municipal Gas Authority of Georgia (Reedy Creek), court documents state.

Lehman stopped performing its obligations on Sept. 17, 2008, according to court documents.

Disputed amounts

Under the terms of the gas purchase agreement, Lehman is obligated to reimburse Main Street for the difference in price between the gas not delivered and the cost of the gas Main Street bought elsewhere to fulfill its obligations.

On Sept. 22, 2009, the Bank of New York and Main Street each asserted a claim of at least $751 million.

Lehman believed the claim should have been $674 million.

"The dispute between the debtors [...] and BNYM and Main Street [...] lies primarily in the interpretation of the definition of unearned amount and the calculation thereof and the inclusion of accrued but unpaid interest in the reimbursement amount," court documents state.

After months of negotiations, the parties agreed to terms.

Under the stipulation and agreement filed with the court,

• The Bank of New York claim will be allowed as a general unsecured claim of $722 million;

• The Main Street claim will be withdrawn;

• The Bank of New York will not object to the debtors' Chapter 11 plan; and

• The debtors agree to release funds held by the trustee for the benefit of the Main Street bondholders.

New York-based Lehman Brothers Holdings 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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