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Share Name | Share Symbol | Market | Type |
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Lehm Bros Hldgs | NYSE:LEH | NYSE | Ordinary Share |
Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
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0.00 | 0.00% | 0.00 | - |
A judge on Wednesday signed off on a deal between J.P. Morgan Chase & Co. (JPM) and Lehman Brothers Holdings Inc. (LEHMQ) that calls for J.P. Morgan to slash most of a $710 million claim it filed against Lehman's bankruptcy estate, money that Lehman plans to distribute to creditors soon.
Judge James Peck of U.S. Bankruptcy Court in Manhattan approved the deal, which is related to J.P. Morgan's third-party investment funds and which gives $699.2 million of that claim to Lehman. In return, J.P. Morgan will have some other claims reinstated and get $15 million in cash. The settlement will have no financial impact on J.P. Morgan, the bank has said.
Lehman sought a fast hearing on the settlement, disclosed in court papers on February 1, so it could distribute the money to other creditors quickly. It still wants to make its first distribution by the end of the first quarter.
While Lehman believes it would have prevailed in fighting the claims, it was cognizant of "avoiding the costs, delays and litigation risks," said Lehman lawyer L.P. Harrison III of Curtis, Mallet-Prevost, Colt & Mosle LLP.
Peck said of the settlement, "The benefits are obvious."
The $710 million is actually a rather small chunk of a larger dispute between Lehman and J.P. Morgan, as Lehman is also trying to drastically reduce nearly $30 billion in other claims that J.P. Morgan has filed in the Chapter 11 case.
Aside from the claims' dispute, the two sides are suing each other over what happened in the tumultuous days of September 2008, with Lehman alleging that J.P. Morgan illegally siphoned billions of dollars from Lehman just before the bankruptcy and J.P. Morgan countering that Lehman used "collusion and deception" when it told J.P. Morgan that an emergency loan it made was backed by $70 billion in securities.
Peck on Wednesday also granted U.S. bankruptcy protection to Lehman's Australian subsidiary, a move that protects Lehman Brothers Australia Ltd. from lawsuits or creditor attempts to seize its U.S. assets. Under Chapter 15, a feature added to the U.S. bankruptcy code in 2005, a company such as Lehman Australia can seek a U.S. bankruptcy court's recognition of its foreign bankruptcy case as the main proceeding.
Lehman Australia said in its bankruptcy petition last month that it has $1.3 billion in claims against Lehman's holding company for losses related to structured finance arrangements known as synthetic collateralized-debt obligations, or CDOs.
Recognition of the foreign bankruptcy proceeding is often simply procedural, but it is of interest here because of differing court rulings on different continents over complex derivatives arrangements.
Investors in Australia are suing Lehman Australia over losses associated with synthetic credit-linked notes issued by a Lehman-sponsored vehicle called Dante. The Australian unit said it may have claims against its U.S.-based parent if investors succeed in the lawsuit. In addition, Lehman's U.S. bankruptcy estate and the Australian investors have laid claim to collateral backing the notes.
The Australian subsidiary's bankruptcy is the latest part of what has become a contentious argument in the U.S. and in Europe regarding what are known flip clauses in credit-derivative contracts, which, if honored, would allow companies to jump ahead of Lehman and grab the assets backing the derivatives in those deals.
A 2009 English High Court ruling called for investors to be put ahead of Lehman so they could be repaid. But Peck said that was the wrong thing to do, ruling that the flip clauses violated U.S. bankruptcy law.
Peck's decision on flips, which he acknowledged "may be a controversial one," upset expectations in the market for collateralized-debt obligations and other structured-finance deals, forcing investors to forgo billions of dollars in collateral.
In another case involving the derivatives, the U.K. Supreme Court last summer ruled again in favor of investors.
Peck in early December approved Lehman's creditor-payback plan, which should distribute about $65 billion and treats creditors of Lehman subsidiaries better than those of the parent company.
Despite confirmation of the plan, the company still has billions of dollars in real estate and other assets and will continue to exist as it unloads and manages those investments. Last month, Lehman said it wants to begin distributing about $10.7 billion to its creditors soon, hopefully by the end of the first quarter.
(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection.)
-By Joseph Checkler, Dow Jones Newswires; 212-416-2152; joseph.checkler@dowjones.com
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