Lehman Bondholders Worried About How Tax Bill Will Be Divvied
May 12 2011 - 4:13PM
Dow Jones News
A group of Lehman Brothers Holdings Inc. (LEHMQ) bondholders led
by Paulson & Co. is concerned about how Lehman's tax bill will
be divvied up among creditors, in what appears to be a preview to a
larger fight over the two sides' competing plans to distribute
Lehman's assets.
In a Wednesday filing with the U.S. Bankruptcy Court in
Manhattan, the group of bondholders, which holds more than $20
billion in claims against Lehman, said that while it supports a
recent settlement between Lehman and New York regulators on
Lehman's tax bill, it wants to be able to challenge how the tax
money may be allocated.
The bondholders filed their competing plan because they think
Lehman's proposal treats creditors of various Lehman subsidiaries
much better than creditors of the Lehman parent, like themselves.
In their court filings, the bondholders point out that Lehman
allots for about $2 billion in what are called priority tax
liabilities, with about 75% of those claims being paid by the
Lehman parent.
"How such claims are allocated throughout the enterprise can
have a significant and material impact on recoveries to impaired
creditors," the group says. A Lehman spokeswoman declined
comment.
Late last month, Lehman settled a $1.2 billion tax bill with New
York authorities for about $144 million, an agreement that Judge
James Peck of U.S. Bankruptcy Court in Manhattan will rule on at a
hearing next week. The bondholder group said that while it supports
the tax settlement, it "presents certain issues that are already a
common theme in these cases and that will come under increasing
focus and scrutiny as these Chapter 11 cases move through the plan
process."
Besides the competing plan from Paulson's group, which includes
fellow hedge-fund managers Perry Capital and Fir Tree Partners, and
pension funds including the California Public Employees' Retirement
System and the County of San Mateo, a group including Goldman Sachs
Group Inc. (GS) and distressed-investment firm Silver Point Capital
LP has filed a plan that would give greater recovery to Lehman's
so-called "operating subsidiaries." Peck in June can decide whether
to send any or all of the plans to Lehman creditors for a vote,
although Lehman said it might ask the court if creditors can vote
on its plan first.
Lehman's collapse in September 2008 marked the largest U.S.
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 investment 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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