By Joseph Checkler Of DOW JONES DAILY BANKRUPTCY REVIEW NEW YORK -(Dow Jones)- A group of investors including hedge-fund manager Paulson & Co. on Wednesday filed a competing reorganization plan for Lehman Brothers Holdings Inc. (LEHMQ) that would provide a better recovery to creditors of the original Lehman parent company, while offering a smaller payout to some creditors of Lehman subsidiaries. The 10-member group, which calls itself the ad hoc group of Lehman Brothers creditors, counts among its members bondholders like hedge-fund managers Paulson, Perry Capital and Fir Tree Partners, as well as pension funds including the California Public Employees' Retirement System and the County of San Mateo. Together, the group of 10 members is owed some $9.5 billion from Lehman's holding company, plus $3 billion from other Lehman entities. Lehman is distributing about $57.5 billion in assets in its plan's current iteration. The filing by the ad hoc group, made in U.S. Bankruptcy Court in Manhattan, calls for senior bondholders like its members, due about 17.4 cents on the dollar in Lehman's plan, to get more than 24 cents on the dollar. Foreign creditors, creditors of Lehman's derivatives subsidiary and others would see a drop in their recoveries. The ad-hoc group back in June said Lehman's plan to establish a "pot of assets" to pay back creditors was "seriously flawed," particularly in the way it handles intercompany claims between various Lehman businesses. That plan, they said, could allow for double recovery, or a "double-dip," for certain Lehman creditors. Certain Lehman creditors, many of them big banks, have claims on derivatives contracts against both their counterparty on the contract and the Lehman parent company as a whole. John Beiers, in-house counsel for the county of San Mateo, Calif., told Dow Jones his client lent money to Lehman at par. "We relied on the credit of Lehman Brothers as a whole when lending and notwithstanding that all creditors relied on Lehman as a whole, banks that engaged in a risky derivatives business stand to benefit by receiving an enhanced recovery at the expense of taxpayers," Beiers said. In April, Lehman unveiled details of its plan to pay back creditors some of the estimated $1 trillion in claims filed against the investment bank in the largest bankruptcy case in U.S. history. Lehman Chief Executive Bryan Marsal, head of restructuring firm Alvarez & Marsal, has said the company hopes to file an updated plan by the end of the year or early next year. Marsal told Dow Jones in a statement e-mailed Tuesday, "We try to be thoughtful and listen to the position or concerns of each creditor constituency. In order to reduce the amount of in-court fighting among creditors and maximize our prospects for final plan approval, we have chosen to give the various parties a chance to plead their position." He added, "Significant progress has been made on getting creditor consensus." Marsal said in September that the argument for both breaking Lehman up and substantively consolidating it each had their "merits." While the argument that Lehman operated as one company is true, Marsal added that Lehman had many subsidiaries and 30 different comptrollers. The original Lehman plan includes a number of intercompany settlements and actually constitutes 23 distinct Chapter 11 plans, applying to each of the Lehman units in bankruptcy. In Lehman's plan, allowed claims against a particular debtor will be paid from the assets of that debtor, with recoveries for unsecured creditors ranging from about 10 cents on the dollar to 44 cents. That's a problem, according to the bondholder group, which says creditors of the parent company stand to fare better if the various Lehman units are treated as a single company, or substantively consolidated, for purposes of the Chapter 11 distribution. Many of the creditors of the subsidiary companies are big banks, which would see lower--but not drastically lower--recoveries under the ad-hoc plan. Under the proposed Lehman plan, general unsecured creditors of its holding company can expect recoveries on their claims of 10.4% to 14.7%. Unsecured creditors of other Lehman units will do better. General unsecured creditors of the company's commercial paper unit can expect to recover between 29 cents and 44 cents on the dollar for their claims. Unsecured creditors of Lehman's special finance unit, the heart of much of its derivatives business, can expect to recover somewhere between 22 cents to 24 cents on the dollar. Those numbers are all lower under the competing plan. In June, after Lehman's exclusive right to file a plan has ended, the ad hoc group started considering filing a competing reorganization plan, said two people familiar with the group's thinking at that time. (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
