Lehman Brothers: Court approves settlements for property, financing, unclaimed funds

By Lisa Kerner

Charlotte, N.C., Aug. 17 - Lehman Brothers Holdings Inc. and Lehman Commercial Paper Inc. had three settlements approved by the U.S. Bankruptcy Court for the Southern District of New York on Wednesday, according to an attorney familiar with the cases.

State Street Bank settlement

Lehman Brothers Holdings' master repurchase agreement claim settlement with State Street Bank & Trust Co. was approved.

As previously reported, Lehman Commercial Paper agreed to repurchase the State Street assets for $1 billion, plus an agreed upon price differential.

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.

State Street also filed $425 million deficiency claims against the holding company and Lehman Commercial Paper. Later, State Street alleged the actual amount due on the deficiency claims was $638 million, according to Lehman.

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.

Creation of guarantor entity

Lehman Brothers and Lehman Commercial Paper were approved to create two auditable credit-worthy guarantor entities and fund each entity with a capital contribution of up to $50 million in cash to serve as guarantors for typical non-recourse carve outs.

As previously reported, such a guarantor entity satisfies the requirements of senior mortgage lenders as Lehman continues to bring foreclosure actions on mezzanine loan transactions to obtain its collateral.

The absence of a guarantor has led to technical default, leaving the company with the choice of either paying off a mortgage loan at par, often with default interest, or walking away from its investment at a loss.

Rosslyn joint venture

The court approved the sale of Lehman Brothers and Lehman Commercial Paper's 78.5% limited partner interest in Rosslyn Syndication Partners JV LP to a third party in exchange for at least $385 million in cash proceeds.

As previously reported, the buyer is a joint venture in which Goldman Sachs & Co. is the general partner.

Unclaimed funds settlement

According to a Wednesday court filing, an agreement for the allocation and distribution of $14.55 million in unclaimed funds was also approved.

The funds were deposited by the New York State Comptroller Office of Unclaimed Funds to be claimed by Lehman Brothers Holdings and the Securities Investor Protection Act (SIPA) trustee on behalf of Lehman Brothers Inc.

Under the agreement, $13.16 million of the unclaimed funds will go to Lehman Brothers Inc. and $1.32 million to Lehman Brothers Holdings.

New York-based Lehman Brothers Holdings 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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