Lehman debtor files suit alleging swap termination payment shortfall

By Caroline Salls

Pittsburgh, July 14 - Lehman Brothers Special Financing Inc. filed a lawsuit Thursday alleging a breach of obligations in connection with the proper valuation of amounts due with the termination of interest rate swaps, according to a filing with the U.S. Bankruptcy Court for the Southern District of New York.

The defendants are AmeriCredit Automobile Receivables Trust 2005-B-M, AmeriCredit Automobile Receivables Trust 2007-B-F and AmeriCredit Automobile Receivables Trust 2007-D-F.

Lehman is also alleging that the trusts breached the "implied covenant of good faith and fair dealing" in their contracts.

According to the adversary proceeding, the trusts issued a total of $3.85 billion of fixed-rate and variable-rate notes and entered into the interest rate swaps with Lehman Brothers Special Financing in connection with the variable-rate notes.

The swaps were terminated when Lehman filed for bankruptcy.

Lehman alleged that the defendants failed to solicit bids and calculate the early termination payment under any of the swaps in accordance with the swap agreements and "substantially undervalued - and dramatically underpaid - the early termination payments to which [Lehman Brothers Special Financing] was contractually entitled."

Despite "drastically changed market conditions," Lehman said the trusts prematurely solicited bids and did not take any steps to cause the bids to be refreshed or improved in any way.

Specifically, Lehman Brothers Special Financing said it should have received a $5.37 million early termination payment on the 2005 interest swap, $28.69 million under the 2007 B-F interest swap and $8.47 million under the 2007 D-F interest swap.

However, Lehman said it only received a total of $13.19 million in early termination payments from the trusts, based on the trusts' calculations that the company was entitled to a $691,009 payment on the 2005 swap, an $11.1 payment on the 2007 B-F swap and a $1.4 million payment on the 2007 D-F swap.

In addition to payments in an amount to be determined by the court, Lehman Brothers Special Financing is seeking payment of $13.04 million in default interest accruing from Nov. 20, 2008 to July 13.

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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