UPDATE: Lehman Suing Intel Over Swap Deal Gone Bad

(Adds Intel comment in fourth paragraph.)

 
   By Joseph Checkler 
 

Lehman Brothers Holdings Inc. is suing Intel Corp. (INTC) over $1 billion the computer-chip maker seized as the result of a sour swap deal.

In a Wednesday filing with U.S. Bankruptcy Court in Manhattan, Lehman said the more-than $1 billion in collateral Intel seized a few weeks after the investment bank's 2008 collapse was too much.

"This is an action to recover collateral that was unlawfully seized by Intel in breach of a swap agreement between [Lehman's over-the-counter derivatives unit] and Intel," Lehman said.

Intel spokesman Chuck Mulloy said, "We believe these claims are baseless."

When Lehman filed for bankruptcy on Sept. 15, 2008, Intel had the right to terminate the swap agreement, which called for Intel to pay Lehman $1 billion in exchange for a number of Intel shares determined by a formula based on Intel's stock price fluctuation. Instead, Intel waited out the market and decided to terminate the agreement on Sept. 29, 2008, which also happened to be the settlement date for the swap. Intel's responsibility at that point was to determine its losses as a result of the termination and seize cash from Lehman based on that determination. Intel decided to seize the entire $1 billion in collateral and $2 million in interest.

"Intel's reasonable losses as a result of terminating the swap agreement were far less than $1 billion," Lehman said in its filing. The investment bank added, "all Intel was entitled to was 50,552,943 shares of Intel stock as the value of the number of shares."

In the filing, Lehman said it has demanded the money back but Intel hasn't returned it.

Lehman said if Intel bought those shares on the open market around that time, after a company-imposed "blackout" period, the stock would be worth less than $700 million.

In the filing, Lehman said it is suing Intel for breach of contract, violation of the automatic-stay provision of the Bankruptcy Code that protects debtors from litigation, and violation of the turnover provision of the Code that allows companies to recover property.

Lehman collapsed in September 2008, becoming a symbol of one of the great financial crises in U.S history. Its U.S. brokerage business was quickly sold to Barclays PLC (BCS, BARC.LN), but the remnants of the rest of Lehman still exist in billions of dollars of assets being overseen by Alvarez & Marsal and the winding down of the brokerage business under the guidance of trustee James W. Giddens.

The company's payback plan became effective in early 2012, and creditors have been paid $47 billion since. Still, the estate continues to pursue claims for creditors like the one against Intel, ensuring Lehman will have regular dates in bankruptcy court for years to come.

(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection. Go to http://dbr.dowjones.com)

Write to Joseph Checkler at [e-mail].

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