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Lehman Resolves $20 Billion of Claims With Hong Kong Affiliates

Lehman, Hong Kong Liquidators Resolve $20 Billion of Claims
Property and artwork from the Lehman Brothers collection sits on display during the auction at Christie's International in London on Sept. 29, 2010. Once the world’s fourth-biggest investment bank, Lehman entered bankruptcy almost three years ago and twice amended its proposals to pay claims in response to creditor challenges. Photographer: Rupert Hartley/Bloomberg

Lehman Brothers Holdings Inc. said it settled $20 billion of intercompany claims with liquidators for Lehman Hong Kong and won the affiliate’s support for its liquidation plan.

Details of the agreement, which is subject to court approval in the U.S. and Hong Kong, weren’t provided in Lehman’s statement yesterday.

Edward Middleton, a partner at KPMG China and one of the Hong Kong liquidators, said that the settlement will benefit creditors by speeding liquidations.

A final reconciliation of claims related to derivatives positions should be reached within 60 days, he said today.

Lehman is gathering support for a $65 billion liquidation plan. It said last month that creditors holding more than $100 billion in claims signed their support for the company’s latest payout plan, which allots more money to a group including Goldman Sachs Group Inc. and less to bondholders including Paulson & Co.

The compromise reached, after contentious battles with creditors, by Lehman Chief Executive Officer Bryan Marsal and negotiators including lawyer Lori Fife of Weil Gotshal & Manges LLP, Lehman’s bankruptcy law firm, ends the threat of “protracted litigation” over the plan, Lehman said in a statement in July.

Plan Confirmation

Lehman aims to confirm its plan by year end and start distributing a “significant” amount of its $21 billion in available cash shortly after, Fife said.

Kimberly Macleod, a spokeswoman for New York-based Lehman, didn’t immediately return an e-mail seeking comment after regular business hours yesterday.

Lehman’s eight Hong Kong units have about $24 billion of assets and claims totaling more than $36 billion on their books, Middleton said today. That included about 2,500 listed equity investments and more than 2,700 derivative trades when KPMG took over in September 2008, he said.

While Middleton said he wasn’t able to quantify the recovery rate under the settlement pending final numbers, he said that Lehman Brothers Asia Holdings, the regional funding entity for the Asia Pacific, has already paid its non-Lehman creditors a first initial dividend of 5 percent, or a total of HK$500 million ($64 million).

In February, Lehman said it will allow bankrupt German affiliate Lehman Brothers Bankhaus AG to claim $6.6 billion from the parent company as part of a settlement, compared with an original claim of $25 billion.

Once the world’s fourth-biggest investment bank, Lehman entered bankruptcy almost three years ago and twice amended its proposals to pay claims in response to creditor challenges.

Marsal aims to raise a total of $65 billion from the firm’s assets, including the cash already in hand. He previously estimated final claims at more than $300 billion.

Lehman filed for bankruptcy in 2008 with assets of $639 billion.

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

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