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Lehman $61 Billion Plan ‘Unlikely’ to Succeed, Goldman Says

Lehman Brothers Holdings Inc.’s $61 billion payment plan is “highly unlikely” to win approval and contains “gifts” to bondholders that other creditors haven’t approved, said a group of derivatives creditors including Goldman Sachs Group Inc. (GS) and Silver Point Capital LP.

The group has said it may file a rival plan and wants the judge to consider it concurrently with Lehman’s proposal. Lehman, which is set to ask U.S. Bankruptcy Judge James Peck on June 28 to allow creditors to vote on its proposal, asked Peck last week to give “primacy” to its proposal in order to “best serve the interests of all stakeholders,” delaying consideration of other plans.

Lehman is trying to deal with mounting opposition to the way it will apportion among creditors the $61 billion it aims to raise as it liquidates assets. It amended its plan in January, taking money from derivatives creditors to pay bondholders more after a group including hedge fund Paulson & Co. filed a rival proposal. Now it must deal with challenges from Goldman Sachs, Silver Point and other derivatives creditors.

The Paulson group of bondholders, including the California Public Employees’ Retirement System, has challenged Lehman’s plans through much of its bankruptcy. On April 9, it said the defunct firm, which is participating through an affiliate in a bid for hotels owned by Innkeepers USA Trust, is taking a risk that its own stake in the deal might be “virtually valueless.”

Second Unit

The deal, which aims to allow a second Lehman unit to recover most of a $220 million mortgage to Innkeepers, is part of a multibillion-dollar conflict between Lehman and its affiliates as the parent solicits support for its plan to pay Creditors, the group said.

Asking for Lehman’s plan to be heard first, Harvey Miller, Lehman’s lead bankruptcy lawyer, said last week in a filing that the Paulson-Calpers plan “presents the parochial interests of 13 entities that collectively purport to hold claims of approximately $20.2 billion.”

Lehman also is fielding objections from creditors on how it will share information with them as they try to understand how Lehman was run and how creditors should be paid.

Today, the former investment bank asked Peck to reject any remaining objections to revised rules it had set up to circulate documents.

Otherwise, “Left to their own devices, scores of creditors, all represented by their own separate attorneys, would serve multitudes of voluminous and duplicative document requests,” it said. The process might take years, and Lehman would incur “thousands of attorney hours” responding to such individual requests,” it said.

Fees

Lehman paid its lead bankruptcy law firm, Weil, Gotshal & Manges LLP, $279.9 million in the 29 ½ months through February, according to a regulatory filing. It foots the bill for an official creditors committee as part of those outlays.

Also today, FTI Consulting Inc., a financial adviser to the Lehman creditors committee, asked a judge to approve fees of $12.7 million for work done from October through January, plus expenses of $186,352. According to a court filing, FTI has so far asked bankrupt Lehman for a total of $52.2 million in fees.

Lehman filed for bankruptcy in 2008 with debt of $613 billion, making it the largest bankruptcy ever in the U.S.

The case is In re Lehman Brothers Holdings Inc. (LEHMQ), 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporters on this story: Linda Sandler in New York at lsandler@bloomberg.net;

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net

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