By Patrick Fitzgerald and Joseph Checkler
Paul Singer's hedge fund Elliott Management has agreed to pay GBP650 million($1.05 billion) to the corporate parent of Lehman Brothers International (Europe), the U.K arm of the collapsed investment bank, in exchange for the parent company's multibillion dollar claim against its subsidiary.
The trade, which calls for the hedge-fund manager to receive the parent company's roughly GBP1.25 billion ($2 billion) subordinated claim against Lehman Brother's U.K. business in return for the initial payment, is the latest example of distressed debt investors hoping to profit from Lehman's demise more than five years after its collapse.
Derek Howell, who is overseeing U.K. administration of the Lehman parent, known as LB Holdings Intermediate 2 Ltd. for PricewaterhouseCoopers, said in a statement Tuesday that the transaction also allows the unit's creditors to share in claims Elliott has against Lehman Brother's U.K arm.
The deal also sheds a light on the little-noticed world of bankruptcy-claims trading, where billions of dollars in claims trade each month as distressed-debt investors buy up claims from creditors on the cheap and then jockey for a position in the order to receive payment.
The trading of claims has been particularly active with respect to Lehman Brothers International (Europe), or LBIE, in recent months. Royal Bank of Scotland (RBS), for example, last month snapped up a GBP350 million ($567 million) claim against LBIE from New York investment firm Goshen Investments.
Last week, the U.K. unit's administrator's doled out $7.8 billion the so-called omnibus trust creditors. LBIE's administrators eventually hope to return about GBP40 billion ($64.5 billion) to the U.K. arm's creditors.
Sources familiar with the matter say claims against LBIE are trading like they're worth more than 130 cents on the dollar on the secondary market reflecting investors' expectation of a significant payout. Elliott's discounted purchase price of the claim reflects the more than $40 billion already paid out by LBIE's administrators.
Lehman's Chapter 11 filing in September 2008 triggered foreign bankruptcy proceedings for more than 80 of the bank's far-flung affiliates.
The bank's New York-based holding company has reached settlements on intercompany claims with virtually all of its foreign affiliates, including those in the U.K., Japan, Switzerland and Hong Kong, as well as the liquidators of its U.S. broker-dealer.
Lehman Brothers Holdings, since its Chapter 11 plan became effective in early 2012, has been paid creditors nearly $50 billion. That number is expected to grow to more than $80 billion, Lehman said earlier this summer.
The holding company officially exited Chapter 11 protection in March of last year, but the remains of the company still exist in the billions of dollars in assets being overseen by a new board of directors.
The case is expected to continue for several more years as the team sells off Lehman's remaining real estate and private equity holdings and unwinds its derivative positions.
Write to Patrick Fitzgerald at email@example.com and Joseph Checkler at firstname.lastname@example.org
(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection. Go to http://dbr.dowjones.com)
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(END) Dow Jones Newswires
October 01, 2013 16:00 ET (20:00 GMT)Copyright (c) 2013 Dow Jones & Company, Inc.
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