By Linda Sandler on July 26, 2012
Lehman, run by Chief Executive Officer Richard Fuld when its collapse helped bring on the worst economic slump since the Great Depression, settled a fight with creditors in a payment plan that allotted more money to derivatives claimants including Goldman Sachs (GS) (GS) Group Inc. and less to bondholders such as Paulson & Co. Both groups proposed rival plans to pay Lehman’s debts.
Now out of bankruptcy and run by a board including former Goldman Sachs and Morgan Stanley executives, Lehman has put in place incentives for them to encourage faster, and bigger payments to creditors. Its new cash flow estimates include $7.6 billion of payments by affiliates that it doesn’t control, and $1.1 billion collected from litigation, it said in a filing in U.S. Bankruptcy Court in Manhattan.
“Material uncertainties continue to exist regarding the ultimate value realizable from the company’s assets, the timing of asset recoveries, future costs, and the eventual level of allowed creditors’ claims,” Lehman said in the filing.
The new cash flow total doesn’t include certain liabilities, Lehman said.
Chase, BofAJPMorgan Chase & Co. (JPM) (JPM), which Lehman sued to recoup $8.6 billion of collateral, returned $699 million in the continuing lawsuit. Bank of America Corp. (BAC) (BAC), sued by Lehman for $500 million, paid the firm $378 million to end the suit.
Commercial real estate sales are expected to bring in $12.9 billion, up from $11.2 billion under Lehman’s August 2011 liquidation plan. Private-equity investments may bring in $8.8 billion, a little less than expected, while derivatives may contribute $5.9 billion, or $800 million more than anticipated, it said.
The former investment bank’s official exit from bankruptcy court after getting a liquidation plan approved doesn’t mean it is shutting up shop. The board is expected to stay on until 2016 or later, and cash flows may trickle in even after 2016, Lehman said in the filing.
August PlanUnder Lehman’s August plan, senior bondholders, including Paulson, would recover about 21 cents on the dollar. Claims on Lehman’s derivatives unit, such as Goldman’s, would be paid about 28 cents to 32 cents, with extra money from a guarantee, while commercial paper claims would get 48 cents to 56 cents, all based on each dollar of their investment, court papers show.
Lehman failed because of too much debt and risky real estate investments, according to a bankruptcy examiner’s report. The firm filed for bankruptcy with $613 billion in debt. Bankruptcy managers and advisers have charged Lehman almost $1.6 billion in fees since it foundered.
The bankruptcy case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan).