Morgan Stanley to Market Muni Bond Swaps for Lehman

Lehman Brothers Holdings Inc. hired Morgan Stanley to market a portfolio of credit default swaps on municipal securities valued at as much as $675 million to “monetize” the assets for creditors, the bankrupt securities firm said.

The swaps, which are bets on the default of the bonds of 14 municipalities, were valued by Lehman’s special financing unit at $375 million to $675 million between October 2009 and March 2011, and are insured by Berkshire Hathaway Inc., according to a court filing yesterday.

Lehman Brothers Special Financing, the unit, holds the securities as part of a swap agreement, the company said. The municipal securities have a “notional” value of $8 billion, making the swap agreement difficult to sell to a single investor, it said.

Morgan Stanley will try to auction the portfolio to investors, earning an unspecified percentage of the proceeds as fees, Lehman said. It will be entitled to a minimum fee of $2.5 million if the transaction fails, it said.

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

(Corrects first paragraph and headline of story published April 28 to show Lehman was marketing credit default swaps on municipal securities.)
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