Lehman and State Street settle loan repurchase agreement dispute

By Caroline Salls

Pittsburgh, July 15 - Lehman Brothers Holdings Inc. requested court approval of a master repurchase agreement claim settlement with State Street Bank & Trust Co., according to a Friday filing with the U.S. Bankruptcy Court for the Southern District of New York.

Under the repurchase agreement, Lehman Commercial Paper Inc. sold a number of commercial loans and related servicing rights to State Street for $1 billion.

Lehman Commercial Paper agreed to repurchase the assets for $1 billion, plus an agreed upon price differential.

However, Lehman said State Street alleged that Lehman Commercial Paper breached the repurchase agreement in September 2008 by failing to pay the required daily price differential of at least $520,000.

As a result, State Street declared an event of default on the master repurchase agreement and claimed entitlement to Lehman Commercial Paper's ownership interests in the purchased assets and price differential.

Lehman said State Street also filed $425 million deficiency claims against the holding company and Lehman Commercial Paper.

In addition, Lehman said State Street later alleged the actual amount due on the deficiency claims was $638 million.

Under the settlement, State Street will have $400 million general unsecured non-priority claims against Lehman Brothers Holdings and Lehman Commercial Paper, representing a 37% reduction from the claim amounts.

Lehman Commercial Paper has also agreed to either purchase a ProLogis loan from State Street for $67.5 million plus interest or cause the borrower to discharge the loan in full by paying the purchase price to State Street.

The company said there is currently $82.85 million outstanding on the ProLogis loan, which was one of the assets transferred to State Street under the repurchase agreement.

A hearing is scheduled for Aug. 17.

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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