BUSINESS
06/29/2011 03:43 pm ET | Updated Aug 29, 2011

Lehman Brothers Files $65 Billion Liquidation Plan, Setting Stage For Bankruptcy's End

NEW YORK (Caroline Humer and Jonathan Stempel) - Lehman Brothers Holdings Inc filed a new $65 billion bankruptcy liquidation plan that it said has won wider support, possibly setting the stage for the end of the biggest bankruptcy in U.S. history.

If approved, the plan could enable what remains of the fourth-largest U.S. investment bank to emerge from Chapter 11 protection and start repaying creditors. Chief Executive Bryan Marsal has said he hopes to begin payments next year.

In a filing Wednesday with the U.S. Bankruptcy Court in Manhattan, Lehman said it believed it had an "agreement in principle" with major creditor groups on the revised plan.

Its earlier proposals spurred two competing reorganization plans from powerful creditors including the hedge fund Paulson & Co and Goldman Sachs Group Inc.

Under the new plan, many unsecured creditors would still recover only about one-fifth of what they were owed.

The company said a key change from its prior plan in January is that some sums will go to unsecured creditors of the parent rather than creditors of subsidiaries.

In a court filing, Lehman called the compromise a "reasonable, fair and efficient means to resolve and avoid the vexatious, multifaceted and protracted litigation and delay that might otherwise occur."

CREDITOR BACKING

The new plan has the support of two major creditor groups that had filed competing reorganization plans, people familiar with the matter said.

One group comprises bondholders including Paulson's firm and the California Public Employees' Retirement System, or CalPERS, pension fund, one of the sources said.

The other is a derivatives group including Goldman, hedge fund Silver Point Capital LP, Morgan Stanley and other creditors, another of the sources said. This group plans to soon sign an agreement reflecting their support, the source said.

Lehman's plan envisions having these and other creditor representatives select directors for a reconstituted, nine-member Lehman board. The board would oversee how assets are distributed to creditors, probably over a few years.

Representatives of Lehman, Paulson, CalPERS and the Goldman group declined to comment or were not available.

FRACTIONS ON THE DOLLAR

Lehman was the fourth-largest U.S. investment bank, with an estimated $639 billion of assets, when it filed for Chapter 11 protection on September 15, 2008. The bankruptcy was a major trigger for the global financial crisis.

Under the new Lehman plan, holders of unsecured debt from the parent company would receive 21.1 cents on the dollar, down from 21.4 cents under the January plan. Other unsecured creditors would get 19.9 cents on the dollar.

Creditors such as Paulson earlier sought roughly 24 cents on the dollar.

Many unsecured creditors of the Lehman Brothers Special Financing Inc derivatives unit would receive 27.9 cents on the dollar. These creditors include large banks that had been Lehman trading partners, as well as hedge funds.

Holders of commercial paper, a type of short-term debt, could recover 48.4 cents or 55.7 cents on the dollar.

Lehman has said creditors have roughly $322 billion of allowed claims, meaning they would on average recover about 20 cents on the dollar.

U.S. Bankruptcy Judge James Peck presides over Lehman's bankruptcy proceedings.

A hearing to review issues related to Lehman's plan is set for July 20, and a hearing to authorize submitting the plan to creditors for a vote is set for August 30, court records show.

The case is In re: Lehman Brothers Holdings Inc, U.S. Bankruptcy Court, Southern District of New York, No. 08-13555.

(Reporting by Caroline Humer and Jonathan Stempel; editing by Dave Zimmerman and John Wallace)

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