Föhrenbergkreis Finanzwirtschaft

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Wait! There’s $10 Billion Left In Lehman Bros.

Posted by hkarner - 19. Mai 2017

Date: 18-05-2017

Source: The Wall Street Journal

Extra cash is prompting a legal feeding frenzy for hedge funds and distressed-debt investors

LONDON—Lehman Brothers’ collapse in the financial crisis left most of its creditors with deep losses. But Lehman’s main European arm has around $10 billion of extra cash, prompting a legal feeding frenzy for hedge funds and distressed-debt investors.

On Wednesday, the U.K. Supreme Court ruled that senior bondholders seeking interest payments of around $7 billion should get those first, before $1.6 billion in subordinated loans held by investment firms Elliott Management Corp. and King Street Capital Management LP are repaid.

An Elliott spokeswoman declined to comment; King Street couldn’t immediately be reached.

 

Several groups are still battling for chunks of the cash, which is held by Lehman Brothers International Europe, so the final outcome for the subordinated loan holders and some other junior creditors still isn’t clear.

 

Lehman Brothers’ chapter 11 filing triggered bankruptcy proceedings across the world—and disputes between liquidators handling its many subsidiaries over intercompany loans and guarantees. LBIE was unusual in having excess capital.

LBIE paid creditors around £12 billion ($15.5 billion) and had an estimated £7 billion to £8 billion surplus before the interest payments ordered by the court on Wednesday, according to a report by its administrator in April. Under U.K. law, creditors are entitled to 8% interest on claims—though bankrupt companies don’t normally have enough cash to pay it.

The court ruling was mixed for some senior creditors. Dollar-denominated bondholders, led by Minnesota-based CarVal Investors LLC, had the value of their debt converted to pounds at the exchange rate on the day Lehman went bankrupt in September 2008. One pound fetched $1.79 then, compared with $1.29 now.

Those bondholders had asked for $2.5 billion to compensate them for the plunge in sterling. The court threw that claim out, saying that a more favorable payout on debt denominated in dollars would be like giving foreign-currency creditors “a one-way option” to select a better currency rate.

A CarVal spokeswoman declined to comment.

In the U.S., Lehman Brothers Holdings Inc. had paid out around $114 billion to creditors as of late last year. Bondholders so far have received around 40 cents on the dollar for their debt, resulting in big gains for hedge funds that bought the debt at steep discounts after the bank’s collapse.

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