Lehman Commercial Paper agrees to reduce transfer claim to $596,000

By Caroline Salls

Pittsburgh, July 15 – Lehman Commercial Paper Inc. UK Branch (LCPI) agreed to a $596,000 settlement of a preferential transfer lawsuit filed against funded participation agreement portfolio manager AXA Investment Mangers Paris SA and issuer Adagio III CLO plc, according to a news release.

Lehman Brothers International (Europe), Gala Electric Casinos Ltd. and Royal Bank of Scotland entered a £2.35 billion senior facility agreement on Oct. 7, 2005.

LCPI and AXA entered into the funded participation agreement on June 15, 2006, and Adagio’s rights under the participation agreement were elevated to lender of record under the facility from participant on Sept. 26, 2008.

According to the release, the U.S. Bankruptcy Court for the Southern District of New York approved the elevation on Oct. 6, 2008. However, LCPI maintained a right to subsequently argue that any cash distributed to elevation holders was property of its estate.

Lawsuit details

LCPI filed a lawsuit on Oct. 5, 2010 seeking to avoid the elevation as a preferential transfer.

LCPI claimed that Adagio converted a contractual right to payment of LCPI to a direct right to payment from Gala Electric under the facility through the elevation by virtue of the participation, resulting in Adagio receiving payments on the facility directly from Gala as opposed to receiving them through LCPI as a creditor of its estate.

The lawsuit seeks to place Adagio in the same position as it would have been in if the elevation had not occurred.

LCPI sought $3.28 million in connection with its challenge of the elevation.

Settlement terms

The release said the current settlement proposal calls for payment of $596,000 to LCPI by Adagio.

LCPI agreed to reduce the demand in connection with the settlement, which reflects a reduction in the total lawsuit value attributable to Adagio by 71%, leaving a net action value of 29% of the sum originally being claimed, or roughly $950,000.

The release said the settlement takes into account that, upon the return of the avoidable transfer to the LCPI estate, Adagio would have a cross-claim against the LCPI estate of LCPI for amounts it was entitled to receive under the participation.

The settlement also takes into account that Adagio filed a proof of claim in connection with amounts received by LCPI under the participation before the elevation, but were not passed on to Adagio.

As a result, the settlement involves payment of $596,000 compared to the initial $3.28 million claim value, which represents an 82% discount.

Noteholders must give their consent for the settlement by Aug. 4.

New York-based Lehman Brothers Holdings Inc. was the fourth-largest investment bank in the United States. The company emerged from bankruptcy on March 6, 2012.

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