Lehman operating company creditors file third plan in bankruptcy case

By Caroline Salls

Pittsburgh, April 25 - A group of Lehman Brothers Holdings Inc.'s operating company creditors filed a competing plan of reorganization and related disclosure statement for Lehman's Chapter 11 bankruptcy case, according to a Monday filing with the U.S. Bankruptcy Court for the Southern District of New York.

The operating company creditors' include Deutsche Bank, Silver Point Capital, Morgan Stanley, D. E. Shaw Goldman Sachs, Credit Suisse International, The Royal Bank of Scotland plc, Angelo Gordon, Contrarian Capital Management, Goldentree Asset Management and Oaktree Capital Management, among several others.

Earlier this month, the operating company creditors said they were considering filing a competing plan amid Lehman's "proposed reallocation of substantial value from creditors of operating companies to creditors of the holding company through the settlement of unfounded arguments for substantive consolidation, impermissible class gifts, unfairly inflated intercompany claims and a conflict-ridden intercompany claims resolution process."

According to the disclosure statement, the plan does not substantively consolidate the Lehman debtors "nor does it offer any compromise consideration to LBHI standalone creditors who would benefit from any such substantive consolidation."

"In this regard, it is unlike the debtors' plan which provides recoveries to LBHI bondholders that exceed not only what they are legally entitled to receive but also are greater than even what they would receive if domestic substantive consolidation were justified here, which it is not," the operating company creditors said in the disclosure statement.

"This windfall is unprincipled - substantive consolidation is a remedy for harms that LBHI bondholders did not suffer.

"The argument for consolidation on the grounds that Lehman was run as a single enterprise likewise has no legal force.

The creditors said Lehman's argument for consolidation "would require almost every major multinational corporation in the world to change the way it does business."

Creditor treatment

Treatment of creditors under the operating company creditors' plan would include:

• Holders of priority non-tax claims would be paid in full in cash;

• Holders of secured claims against Lehman Brothers Holdings would either be paid in full in cash, receive the proceeds from the sale of the collateral securing the claims or receive the collateral;

• Holders of senior unsecured claims against Lehman Brothers Holdings would recover 16% through a share of available cash and three subordinated class distributions.

These creditors are slated to recover 21.4% under Lehman's plan;

• Holders of senior intercompany claims against Lehman Brothers Holdings would recover 16% through a share of available cash and three subordinated class distributions.

These creditors are slated to recover 16.6% under Lehman's plan;

• Holders of three classes of senior guarantee claims against Lehman Brothers Holdings would recover 15.6% through a share of available cash and two subordinated class distributions.

These creditors are slated to recover 16.1%, 12.9% and 11.1% under Lehman's plan, respectively;

• Holders of derivatives claims, general unsecured claims, intercompany claims, affiliate guarantee claims and derivative guarantee claims against Lehman Brothers Holdings will receive a share of available cash. The 14.7% to be recovered by general unsecured creditors represents a decrease from the 19.8% these creditors would receive under Lehman's plan;

• Holders of subordinated claims against Lehman Brothers Holdings will receive no distribution unless all senior unsecured and senior intercompany claims are paid in full, in which cash they would receive a distribution of available cash and a subordinated distribution;

• Holders of Section 510(b) claims against Lehman Brothers Holdings will receive no distribution until all other claims are paid in full, in which case they would receive a share of available cash;

• Holders of equity interests against Lehman Brothers Holdings will receive no distribution unless all other creditors are paid in full;

• Holders of general unsecured claims against Lehman Commercial Paper will recover 60.4% through available cash, compared with 51.9% under the company's plan; and

• Holders of general unsecured claims and derivatives claims against numerous other Lehman debtors would receive a share of available cash or be paid in full in cash for an estimated recovery greater than or equal to the expected recovery under the company's plan.

Competing plans

As previously reported, Lehman and an informal group of Lehman Brothers creditors have also filed plans in Lehman's bankruptcy case.

A hearing on all disclosure statements will be held on June 28.

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.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.