BCS Barclays PLC

The team winding down Lehman Brothers Holdings Inc. said Thursday it would be paying out $2.8 billion to creditors next week, more than 7 1/2 years after the investment bank's collapse triggered the financial crisis.

The distribution, the 10th since the investment bank failed in 2008, will bring the total payout in the firm's bankruptcy to more than $109.9 billion. The bulk of the cash—$80.5 billion—has gone to pay so-called third-party, or non-Lehman claims.

Most of the latest payout, some $1.5 billion, is coming from a bankruptcy settlement between Lehman and J.P. Morgan Chase & Co. The deal, announced in January, resolved the bulk of Lehman's $8.6 billion lawsuit that claimed J.P. Morgan illegally siphoned billions of dollars from the foundering investment bank before its collapse.

Lehman officials sought special court permission to distribute the cash, which was delayed following the appeal of the settlement.

Lehman said Thursday in a filing in U.S. Bankruptcy Court in New York that its general unsecured creditors, who were estimated to receive less than 20 cents on the dollar when Lehman's bankruptcy plan went into effect in early 2012, will have recovered nearly 38 cents on the dollar after the next distribution is completed.

The chapter 11 payment plan for Lehman treats similarly situated creditors of its subsidiaries better than those of the parent. For example, general unsecured creditors of Lehman's Special Finance unit, the heart of the failed investment bank's derivatives business, have so far recovered more than 36 cents on the dollar, though they are limited to how much they can claim.

General unsecured creditors of Lehman's commodities unit, meanwhile, will have received more than 78 cents on the dollar following the latest distribution. The boost in recoveries has come from gains in the estate's real estate, derivatives and private-equity investments, Lehman has said.

For the unsecured creditors, among them a number of hedge funds such as Paulson & Co. that spent the years after Lehman's collapse buying up bankruptcy claims at steep discounts, the increased recoveries are adding hundreds of millions in profits already booked.

Lehman, once the nation's fourth-largest investment bank, collapsed into the largest bankruptcy ever in September 2008 and its U.S. brokerage business was quickly sold off to Barclays PLC.

After the bank failed, some creditors bailed out, not wanting to wait for their money or to take a chance they wouldn't get paid at all. Hedge funds were willing buyers of their claims at steep discounts, betting they would gain in value after the initial panic subsided.

That bet has become fruitful. Since the bankruptcy, Lehman has consistently increased estimates of how much creditors would get back, helping hedge-fund managers such as Paulson and Elliott Management Corp. rake in big profits.

A team of bankruptcy professionals under the direction of turnaround firm Alvarez & Marsal managed the New York holding company's assets until Lehman's exit from bankruptcy in 2012, when a reorganized company emerged, overseen by a new board of directors.

Because Lehman still has about $7 billion in remaining investments to unwind and more money to pay creditors, the bank is expected to exist in some form for several more years. Lehman plans to make an 11th distribution at the end of September.

Write to Patrick Fitzgerald at patrick.fitzgerald@wsj.com

(END) Dow Jones Newswires

June 09, 2016 13:05 ET (17:05 GMT)

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