Lehman U.K. Wins London Court Appeal on Hedging Contracts

Lehman Brothers Holdings Inc.’s U.K. unit won an appeal on the interpretation of hedging contracts with the failed bank’s Swiss subsidiary.

The ruling on the contracts valued at about $1 billion won’t have any impact on a settlement reached between the two sides last month, said Stephanie Howel, a spokeswoman for Lehman Brothers International Europe administrators PricewaterhouseCoopers LLP.

“In the very unlikely event that the settlement does not proceed, both parties will need to review today’s judgment,” she said.

Lehman spread risk from its derivatives trades by using inter-company agreements with Swiss unit Lehman Brothers Finance SA. The appeal dealt with how those contracts should be closed out and whether a letter setting out conditions for unwinding those deals should be considered.

“The side letter should be taken into account for the purposes of determining the value,” Judge Mary Arden ruled, allowing PwC’s appeal and overturning a prior ruling.

PwC settled legal disputes with Lehman’s U.S. bankruptcy trustee and Swiss administrators in February, paving the way for the return of money to the U.K. unit’s creditors. PwC announced its first distribution to creditors last April, more than three-and-a-half years after what was once the fourth-largest U.S. investment bank filed the biggest bankruptcy in American history, listing $613 billion in debts and setting off a global credit crunch.

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