New Offer for Lehman Restructuring Plan Made

by San Antonio Attorney

Creditors of Lehman Brothers Holdings Inc have proposed a new plan to restructure the financially stricken company to boost financial recovery and protect finances from the other ailing subsidiaries of the firm. The proponents of the restructuring plan are led by Morgan Stanley and Goldman Sachs, together with twenty other banks and hedge fund firms.

The proposed plan was filed in the U.S. Bankruptcy Court in Manhattan last April 26, 2011. This is the third such restructuring plan proposed for the bankrupt financial firm since September 2008.

One of the major measures contained in the proposed plan would be centered around forty one percent recovery on creditor’s claims from the derivative businesses of Lehman Brothers. It also provides for sixteen percent recovery for bondholders. The major proponents of the plan form part of the first group standing to recover from the institution of the proposal.

This proposal is very different from the proposal filed last December by a group of bondholders such as hedge fund Paulson and Co. In this alternative plan, the derivatives creditors would be able to recover only 25.7 percent and the bondholders, such as the proponent, would stand to recover 24.5 percent.

For its own restructuring, Lehman proposed a plan that would provide for recovery at 34 percent for derivatives creditors and for bondholders at 21.4 percent. In light of the newly filed proposal, a spokesperson for Lehman said it is currently reviewing the restructuring plan submitted by Morgan Stanley and other derivatives creditors. No comment was obtained from the representatives of the bondholder group led by Paulson and Co.

The filing of the restructuring plan from derivatives creditors comes after weeks of rumors about an alternative plan to the Paulson or Lehman group plans. The deadline for the submission of restructuring plans was set for April 29. All the plans submitted would then be included in hearing set for June as to which plan would be sent to creditors for approval or rejection.

Another major sticking point in the earlier proposals was the issue of consolidation. The group of derivatives creditors, such as Morgan Stanley, Goldman Sachs, Silver Point Capital LP, The Royal Bank of Scotland PLC and Deutsche Bank AG, have vehemently rejected consolidation. This consolidation would mean assets of the ailing company would be put into one single asset account. This allows the merger of the strongest and weakest assets of the insolvent company, which hampers the returns for creditors with healthy finances and upgrades the credit of those with weak balance sheets.

The Paulson plan calls for consolidation and reasons that without this, the separated assets would only help those creditors who undertook risky derivatives trades with unfairly high returns. The Lehman plan would not consolidate the assets but allows for asset redistribution for creditors who would only have marginal recovery on their assets. These three differing plans showcase the interests of investors seeking to recover lost investments after Lehman sought Chapter 11 insolvency protection despite having $639 billion in assets, almost six times greater than any other company in the United States ever to seek insolvency protection.

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