Lehman files amended plan to address issues; treatment unchanged

By Caroline Salls

Pittsburgh, Jan. 26 - Lehman Brothers Holdings Inc. filed a first amended joint plan of reorganization and disclosure statement Tuesday with the U.S. Bankruptcy Court for the Southern District of New York.

According to a company news release, the plan provides for the fair and reasonable treatment of the claims that have been filed against the Lehman debtors. The company's official committee of unsecured creditors (UCC) supports the plan.

"This plan takes into account the input, comments and suggestions of many parties, including the UCC, the creditors of LBHI, creditors of subsidiary debtors, foreign affiliates and others," Lehman chief executive officer Bryan Marsal said in the release.

"It is a balanced, rational resolution of issues. It represents a fair economic compromise, will expedite the administration of these cases and accelerate distributions to creditors.

"From the outset, we have tried to develop a plan that balances the varied interests in a way that is fair to each stakeholder group and provides the best outcome for creditors.

"This plan resolves issues in a way designed to minimize time consuming and multi-jurisdictional litigation with an uncertain outcome," he added.

Issues resolved

According to the disclosure statement, specific issues addressed by the amended plan include:

• The potential substantive consolidation of the company and some of its affiliates;

• The validity and enforceability of guarantee claims;

• The allowed amount of intercompany claims;

• The characterization of intercompany balances owed to Lehman Brothers Holdings by subsidiary debtors;

• The potential equitable, contractual or statutory subordination of some claims;

• The ownership and rights of various debtors and their affiliates on some assets;

• The methodologies and principles for the valuation of claims based on securities issued or guaranteed by Lehman Brothers Holdings; and

• The methodologies and principles for the valuation of claims based on derivatives contracts.

Amended plan terms

According to the disclosure statement, the wind-down and liquidation of each debtor's assets will take place for at least three years after the plan effective date.

Treatment of creditors will include:

• Administrative and priority claims against Lehman Brothers Holdings will be paid in full in cash;

• Holders of senior unsecured claims, senior intercompany claims, senior affiliate guarantee claims, senior third-party guarantee claims, derivative claims, general unsecured claims, intercompany claims, affiliate guarantee claims and derivative guarantee claims against Lehman Brothers Holdings will receive a share of a cash distribution;

• Holders of subordinated claims against Lehman Brothers Holdings will receive no distribution because their distributions will be automatically reallocated under subordinated provisions;

• Holders of Lehman Brothers Holdings equity interests and subsidiary debtor equity interests will receive no distribution unless all other creditors have been paid in full;

• If holders of senior unsecured claims, derivatives claims and general unsecured claims against Lehman Brothers Holdings vote to accept the plan, some of the other creditors' distribution will be reallocated to these classes;

• Holders of secured claims will either receive the proceeds from the sale of the collateral securing the claims, receive the collateral or have the rights to their claims remain unaltered;

• Holders of general unsecured claims, Lehman Brothers Holdings intercompany claims, other affiliate intercompany claims and derivatives claims against participating subsidiary debtors will receive a share of cash remaining after payment in full of administrative and priority claims against these debtors and satisfaction of allowed secured claims; and

• Holders of general unsecured claims, Lehman Brothers Holdings intercompany claims and affiliate intercompany claims other than derivatives claims against non-participating subsidiary debtors will receive cash remaining after payment of administrative and priority claims and satisfaction of secured claims against these debtors.

Distribution comparison

Creditor treatment under the amended plan is essentially identical to the creditor treatment proposed under the company's original plan filed in March 2010.

As previously reported, under the original plan:

• Holders of administrative expense claims, priority tax claims and priority non-tax claims would have been paid in full in cash;

• Holders of secured claims would either be paid in full in cash, receive the proceeds from the sale of the collateral securing the claim, receive the collateral or see the claim remain unaltered;

• Holders of senior unsecured claims would have received a share of available cash and a senior unsecured claim share of reallocated distributions;

• Holders of general unsecured claims would have received a share of available cash;

• Holders of subordinated unsecured claims will receive no distribution because any distribution they would receive would be automatically reallocated to holders of senior unsecured claims;

• Holders of intercompany claims would have received a share of available cash;

• Holders of third-party guarantee claims would have received a share of available cash, provided, however that they would not be entitled to a total recovery of more than 100% of their primary claim;

• Holders of affiliate guarantee claims would have received a share of available cash;

• All equity interests in Lehman Brothers Holdings would have been cancelled and holders would have received no distribution unless all other holding company creditor classes were paid in full; and

• Holders of equity interests in subsidiary debtors would have received no distribution unless all other creditors of that debtor have been paid in full.

New York-based Lehman Brothers Holdings Inc. was the fourth-largest investment bank in the United States. The company filed for bankruptcy on Sept. 15, 2008. Its Chapter 11 case number is 08-13555.

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