Lehman Trustee Seeks Another Payout

The trustee in charge of Lehman Brothers Inc. on Thursday sought court approval to make his fourth distribution to the defunct brokerage's unsecured creditors, boosting their recovery to 38 cents on the dollar.

Trustee James Giddens said he's close to finishing winding down Lehman's broker-dealer business more than seven years after the bank collapsed.

Previously, creditors' recovery was pegged at 35 cents on the dollar.

"With the potential for a fourth distribution, the amount returned to general creditors continues to exceed all expectations, and there will be more to come," Mr. Giddens said. "We are pressing to resolve all outstanding issues fairly and equitably so we can close out the estate."

Mr. Giddens, who already has returned $7.8 billion to the brokerage's creditors, says he hasn't calculated the exact amount he expects to pay out. With $1.47 billion in the estate's coffers, he estimates it will another 3 cents, bringing the recovery rate to 38 cents on the dollar.

The trustee said he intends to ask Judge Shelley C. Chapman of U.S. Bankruptcy Court in New York next month for approval for the fourth payout. If he gets the green light, checks will be mailed out in July. Further payouts would be contingent on winning or settling pending litigation, Mr. Giddens said, which would free up funds currently on reserve.

Mr. Giddens began paying back Lehman's creditors—former employees, pension funds, banks and investment firms with unsecured claims against the brokerage—after paying back the brokerage's customers in full.

The distinction between "customer" and "unsecured creditor" is a crucial one in the Lehman case. Customer claims get paid before creditor claims under the law covering failed broker-dealers, the Securities Investor Protection Act of 1970.

Customers got 100% of their money back, as have those holding secured and priority claims. Unsecured creditors are set get much less, albeit more than originally expected.

As Mr. Giddens has resolved and settled more claims, he has asked Judge Chapman to further approve distributions to the creditors.

Individual customers of the U.S. brokerage, which is under the purview of the bankruptcy court but not technically in bankruptcy protection, received about $92.3 billion almost immediately after Lehman collapsed. In all, Mr. Giddens has distributed $106 billion to more than 111,000 Lehman customers plus another $8 billion to creditors.

Lehman, once the nation's fourth-largest investment bank by assets, collapsed into the largest bankruptcy ever in September 2008 with $613 billion in liabilities.

The filing sent markets into turmoil and helped trigger a global financial crisis. Lehman's brokerage business was quickly sold to Barclays PLC, and the company's New York-based holding company, Lehman Brothers Holdings Inc., officially exited chapter 11 bankruptcy protection in 2012.

The estate of Lehman Brothers's holding company, which itself has paid back around $100 billion to creditors, is still winding down and selling its remaining holdings, a process that is expected to continue for several more years. Judge Chapman is overseeing both proceedings.

Write to Patrick Fitzgerald at [e-mail]

(END) Dow Jones Newswires

April 28, 2016 17:35 ET (21:35 GMT)

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