Lehman Wants Ad Hoc Group To Disclose More About Itself
March 31 2011 - 1:30PM
Dow Jones News
Lehman Brothers Holdings Inc. (LEHMQ) says an ad hoc group of
creditors proposing a competing bankruptcy plan in its Chapter 11
case is acting as a "de facto committee" and thus must make more
disclosures about its interests in the case if it wants to be
involved.
In a Wednesday filing with U.S. Bankruptcy Court in Manhattan,
Lehman says the ad hoc group of 13 bondholders should be forced to
comply with a bankruptcy rule that requires certain groups to
disclose not only the total amount of their claims, but also the
dates they obtained the securities and how much they paid for them.
The bondholders' group consists of hedge fund managers including
Paulson & Co. and pension funds including California Public
Employees' Retirement System
The investors call themselves the ad hoc group of Lehman
Brothers Creditors, and in a March filing they disclosed they have
13 members holding $20.2 billion across several Lehman entities,
including $16.1 billion in senior secured notes. Besides Paulson
and Calpers, the group includes hedge-fund manager Perry Capital
and bond giant Pimco.
Such disclosures aren't enough to comply with bankruptcy Rule
2019, Lehman says in its court papers, because in Lehman's view the
group "functions as an entity or de facto committee," which if true
would step up the group's reporting requirements.
"The Ad Hoc Group has not publicly provided even minimal
information required under Rule 2019, and absent compliance, should
be barred from participation in these Chapter 11 cases," Lehman
said.
A spokesman for Paulson didn't immediately respond to a request
for comment.
On Tuesday, the group asked Judge James Peck of U.S. Bankruptcy
Court in Manhattan to consider its rival plan for the distribution
of Lehman's assets on the same timetable as Lehman's, meaning a
June 28 hearing to send the plan to creditors for a vote and a Nov.
17 court date for Peck to confirm the plan.
A hearing on the disclosure requirements and whether the two
plans can be considered simultaneously has been set for April 13 in
front of Peck.
Lehman's amended bankruptcy proposal, filed in late January,
gives creditors a better recovery than the original plan filed last
spring. Creditors holding senior unsecured claims against Lehman
would recover 21.4% under the new plan, up from 17.4%. Those
creditors must vote for the plan to get the full recovery. If they
vote against the plan, they would get less. Creditors of several
Lehman subsidiaries may see even-better improvements.
The ad hoc group filed a plan late last year that calls for
senior bondholders like its members to get more than 24 cents on
the dollar. Some other creditors would see a drop in their
recoveries.
The ad hoc group has said that its main problem with Lehman's
proposal is that it establishes a "pot of assets" to pay back
creditors, which is "seriously flawed," particularly in the way it
handles intercompany claims between various Lehman businesses. That
plan, the group said, could allow for double recovery, or a "double
dip," for some 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.
Lehman said in January it would incorporate some of the ad hoc
group's ideas into its plan, but in its new plan said it doesn't
support the competing proposal.
Lehman's collapse in September 2008 marked the largest
bankruptcy case ever filed. Since then, a team of hundreds of
bankruptcy professionals under the direction of restructuring firm
Alvarez & Marsal has managed Lehman's assets--which include
real-estate holdings, corporate debt and derivatives--for the
benefit of creditors.
Lehman estimated earlier this year that it will likely have $322
billion in allowed claims against the estate, with $272 billion
from the parent company and about $50 billion from its various
subsidiaries. The bank increased creditors' expected net recovery
by $2.6 billion from the $57.5 billion it estimated in a September
court presentation.
(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
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