Lehman decides on assumption or rejection of numerous open trade confirmations

By Caroline Salls

Pittsburgh, Nov. 18 - Lehman Brothers Holdings Inc. and Lehman Commercial Paper Inc. have requested court approval to either assume or reject specified open trade confirmations, according to a filing with the U.S. Bankruptcy Court for the Southern District of New York.

According to the motion, the Lehman entities purchased and sold both par and distressed commercial loans before their bankruptcy filing, and these pre-bankruptcy trades were reflected in various oral and written trade confirmations.

The companies said each trade confirmation represented a binding agreement to purchase or sell positions in par or distressed loans, participations in par or distressed loans or claims against third parties at an agreed upon price.

As of the bankruptcy filing date, the companies said they had entered into, but had not yet closed and settled, hundreds of trade confirmations, many of which remain pending.

The Lehman entities said they were the sellers under most of the trades to be assumed and the buyers under most of the trades to be rejected.

Because most of the assumed trades were entered into from April through mid-September, the companies said the terms of those trade confirmations are more favorable than what would be available in today's market, meaning the debtors will realize a greater recovery as a result of assumption than they would through sale of the loan positions on the open market, based on current market prices.

In addition, the Lehman entities said the same market gyrations that render the sell trades favorable to the debtors render the buy trades inimical to the best interests of the estates.

Specifically, the debtors said they can likely purchase loan positions today at significantly lower prices than the prevailing market prices that existed before Sept. 15, and, since the companies are engaged in an orderly liquidation of their businesses, they simply have no need for some of the loan inventory that was to have been acquired under the rejected trades.

Because the rejected trades are "out of the money," the Lehman entities said they cannot be assumed and assigned to a third party for a profit.

On Oct. 17, a group of counterparties to some of Lehman Commercial Paper's open trade confirmations asked the U.S. Bankruptcy Court for the Southern District of New York to force Lehman Commercial Paper to decide whether to assume or reject the open trade confirmations by Nov. 7.

Although Lehman Brothers Holdings was not included in the counterparties' motion, Lehman said in the motion that many parties to its open trade confirmations have also asked it to make a decision on treatment of the confirmations.

The Lehman entities said they originally expected to be able to tell the counterparties whether their respective trade confirmations would be assumed or rejected by Nov. 7, but they decided on Nov. 4 that they needed more time to make decisions on 49 of the open trade confirmations.

Also, the Lehman entities said they will file a motion with the court to assume, assume and assign or reject a second group of trades by Dec. 15.

A hearing on the first group of assumptions and rejections is scheduled for Dec. 3.

New York-based Lehman Brothers Holdings is the fourth-largest investment bank in the United States. The company filed for bankruptcy on Sept. 15. Its Chapter 11 case number is 08-13555.

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