Lehman amends plan; major constituents agree in principle to new terms

By Caroline Salls

Pittsburgh, June 29 - Lehman Brothers Holdings Inc. filed a second amended plan of reorganization and related disclosure statement Wednesday with the U.S. Bankruptcy Court for the Southern District of New York.

According to the disclosure statement, the third amended plan is based on a global settlement of "complex plan issues."

Support pending

The plan is also based on the receipt of support agreements from Lehman's major constituents.

However, although the parties believe they have reached an agreement in principle on the plan terms, the company said the plan support agreements were not finalized before the plan was filed.

If the support agreements were not received by the close of business on June 29, Lehman said the plan would be further amended, potentially affecting the proposed recoveries for some creditor classes.

The company said representative creditor groups, including substantially all of the proponents of the two competing plans filed for Lehman's Chapter 11 case, have agreed to the terms of the third amended plan.

The third amended plan resolves issues related to the potential substantive consolidation of the Lehman debtors and some of their affiliates, the characterization of intercompany balances owed to Lehman Brothers Holdings by subsidiary debtors, the allowed amount of affiliate claims, the ownership and rights of various debtors and their affiliates in connection with specified assets and the allocation of costs and expenses among debtors.

Issues resolved

Specific plan issue resolutions would include:

• 20% of the distribution to holders of allowed claims against Lehman Brothers Holdings based on guarantees will be automatically reallocated to holders of allowed senior unsecured claims and general unsecured claims.

Varying percentages of distributions to holders of allowed claims against specified Lehman debtors will also automatically be reallocated to holders of senior and general unsecured claims against Lehman Brothers Holdings;

• Lehman Brothers Holdings will only receive a distribution on 80% of its allowed claim against each of the subsidiary debtors that is based on the funding of the operations of those debtors.

In addition, the first $100 million of distributions the holding company receives from Lehman Commercial Paper and Lehman Brothers Special Financing on account of its affiliate claims will automatically be distributed to holders of general unsecured claims against those subsidiaries;

• Following Lehman Brothers Special Financing's distribution of $14.156 billion to all of its creditors, the next $70 million of any additional amounts recovered by the subsidiary will go only to holders of allowed general unsecured and affiliate claims against Lehman Brothers Special Financing.

Lehman Brothers Holdings, the participating subsidiary debtors and the Racers trusts will not receive any distribution of these amounts from Lehman Brothers Special Financing;

• The Racers 2007-A trust will have a $1.948 billion claim against Lehman Brothers Special Financing, a $5 billion claim against Lehman Commercial Paper and a $1.948 billion guarantee claim against the holding company;

• All distributions received by the Racers 2007-A trust on account of $1 billion of its allowed claims against Lehman Brothers Special Financing and Lehman Brothers Holdings, as well as 20% of the distributions to the trust on account of its claims against Lehman Commercial Paper will be automatically reallocated to holders of allowed senior and general unsecured claims against the holding company;

• The Lehman debtors will enter into an agreement that allocates the costs and expenses of operating the estates under which Lehman Brothers Special Financing will have a $300 million allowed administrative expense claim against Lehman Brothers Holdings;

• LBT will have an allowed senior affiliate claim against the holding company in the amount of $34.548 billion, significantly less the amount of claims it filed; and

• The company will apply structured securities valuation methodologies to all structured securities claims held by any creditor that is party to a valid and enforceable plan support agreement to determine the amount of their claims.

Creditor recoveries

Estimated holding company creditor recoveries would include:

• Holders of priority claims and secured claims would recover 100%;

• Holders of senior unsecured claims would recover 21.1%;

• Holders of senior affiliate claims would recover 15.6%;

• Holders of senior affiliate guarantee claims would recover 15.2%;

• Holders of senior third-party guarantee claims would recover 12.2%;

• Holders of convenience claims would recover 26%, and holders of convenience guarantee claims would recover 17%;

• Holders of general unsecured claims would recover 19.9%;

• Holders of affiliate claims would recover 14.4%;

• Holders of non-Racers trust third-party guarantee claims would recover 11.5%;

• Holders of Racers trust third-party guarantee claims would recover 7%;

• Holders of subordinated claims and Section 510(b) claims would receive no recovery; and

• Holders of equity interests are not expected to receive any distribution.

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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