Lehman $722 million Main Street gas purchase claim settlement approved

By Caroline Salls

Pittsburgh, Dec. 14 - Lehman Brothers Holdings Inc. received court approval of a $722 million agreement to resolve a dispute with the Bank of New York Trust Co., NA as indenture trustee for Main Street Natural Gas, Inc., according to documents filed Wednesday with the U.S. Bankruptcy Court for the Southern District of New York.

Lehman said the dispute stemmed from an April 2008 gas-purchase agreement with the Main Street indenture trustee.

Main Street paid Lehman Brothers Commodity Services $681.6 million as a prepayment for the purchase of natural gas over a 30-year 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), the motion said.

Lehman stopped performing its obligations on Sept. 17, 2008.

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 filed a claim of at least $751 million. Lehman said it believed the claim should have been $674 million.

Under the agreement:

• 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• The Main Street claim will be withdrawn;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 Lehman debtors' Chapter 11 plan; and

• The Lehman debtors agreed 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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