A group of Lehman Brothers’ creditors, including Paulson & Co and Calpers, has come out against a pay-out plan for the bankrupt bank, arguing that they would unfairly lose out to big banks on billions of dollars of claims.
The group of creditors grew from three to about a dozen members last week when Calpers, Fortress Investment Group and others joined to dispute Lehman’s plan. They collectively have $15.5bn in claims against Lehman’s holding company.
The creditors’ preliminary objection is the latest effort to recover some of the billions they lost when Lehman collapsed in 2008. Lehman’s managers, Alvarez & Marsal, are also seeking to boost the pool of assets available to distribute to creditors and oppose some claims that once approached $1,000bn.
“The stakes are too high for parties in interest simply to hope for global peace,” the creditors’ group said in its filing. They are being represented by Gerrard Uzi, of White & Case, a New York firm.
In a filing to the court on Tuesday, the creditor group argued they were not being given a fair share of Lehman’s remaining assets. Under a pay-out plan proposed by Lehman, some creditors to the holding company would receive 17.4 cents on the dollar, the group says. Meanwhile, creditors to Lehman’s derivatives and commercial paper subsidiaries would receive 24 and 44 cents, respectively.
These creditors include large banks that traded derivatives with Lehman and underwrote its short-term borrowings, such as Goldman Sachs, Bank of America Merrill Lynch and JPMorgan Chase.
Lehman’s plan aims to streamline and speed pay-outs to the various layers of creditors to the parent company and its 22 units around the world through a series of caps on payments.
The creditors objecting to the plan argue that Lehman should be viewed as one company and its assets distributed more equally among all groups owed money, a legal classification known as substantive consolidation.
“A substantive consolidation of the debtors’ US subsidiaries alone would incr-ease recoveries for LBHI creditors by billions, and litigation with respect to other intercompany claims could involve additional billions,” the group said.
Lehman said it had $690bn in assets when it collapsed, making it the largest bankruptcy in history.
Bryan Marsal, Lehman chief executive, said that Lehman had carefully considered the creditors’ group plan, but had rejected it.
“While some creditors might have an advantage in substantive consolidation, others would be significantly disadvantaged,” he said. “This approach would require substantial time and expense, including costly multi-jurisdictional litigation that would take years to resolve.”
Lehman Brothers filed for bankruptcy in September 2008, saying it had $690bn in assets at the time, making it the largest bankruptcy in history. The original group of holding company creditors – composed of Paulson, Elliott Management and King Street Capital – tried unsuccessfully in 2009 to take control of the reorganisation plan away from Lehman.
Lehman has sued creditors such as Nomura Securities, which it claims – and Nomura denies – overstated how much it was owed over terminated contracts.