Lehman Liquidators Settle Australia CDO Lawsuit

A group of Australian towns, charities and churches who purchased risky U.S. mortgage-backed securities sold by Lehman Brothers Holdings Inc.'s Australian unit settled their class-action lawsuit against the failed investment bank, paving the way for the creditors to recover $300 million in the coming year.

PBB Advisory, the liquidators of Lehman Brothers Australia Ltd., said Monday that creditors of dozens of Australian councils, churches and charities that invested in collateralized debt obligations, or CDOs, with Lehman Brothers Australia could expect to begin receiving checks early next year.

"We are hopeful of making distributions to all creditors in or around the first quarter of 2014," said PBB's Marcus Ayres in a statement.

The proposed $300 million distribution would come on top of an earlier $250 million paid out directly to Australian councils and charities from their Lehman-originated investments.

The latest settlement, which requires an Australian court's approval, will speed recoveries of more than 50 cents on the dollar for the Australian investors that sunk hundreds of millions of dollars into CDOs, a type of security backed by a mix of bonds, loans and other assets that later imploded.

An Australian court ruled last year that Lehman Brothers Australia misled unsophisticated investors about the risks associated with the CDOs and was responsible for the investors' losses.

IMF (Australia) Ltd. (IMF.AU), a Australian litigation funding company that backed the class-action lawsuit against Lehman in return for a cut of any recovery, said Monday it expects to receive between $30 to $40 million from the distribution.

Previous attempts to settle the class-action lawsuit were hampered by the risk of jeopardizing insurance recoveries. But last month a group of insurers agreed to pay $48 million to settle Australian investors' CDO claims.

"Securing this insurance settlement was a critical first step in unraveling the estate," Mr. Ayres said, adding that the class-action settlement will bring total recoveries to more than $550 million, "which is an excellent outcome for local creditors caught up in what has been the largest corporate collapse in history."

Lehman Australia filed for the equivalent of bankruptcy protection in Australia in 2009 with a plan that liquidators would sell off the unit's assets and wind down the business.

The collapse of Lehman's New York-based holding company in September 2008 triggered foreign bankruptcy proceedings for more than 80 of the bank's far-flung affiliates. Lehman has reached settlements on intercompany claims with virtually all of its foreign affiliates, including those in the U.K., Switzerland, Japan and Hong Kong.

Lehman's New York-based holding company has paid creditors nearly $50 billion since officially exiting from bankruptcy protection in March 2012. That figure is expected to grow to more than $80 billion, Lehman said earlier this summer.

Although Lehman's holding company is out of bankruptcy, the remnants of its estate continue to wrangle with creditors over billions of dollars in disputed claims. The case is expected to continue for several more years as the New York-based team liquidates the estate's assets.

(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection. Go to )

Write to Patrick Fitzgerald at [e-mail]

Subscribe to WSJ: http://online.wsj.com?mod=djnwires