Bankrupt financial company Lehman Brothers Holdings Inc proposed a new plan for dividing up billions of dollars among its creditors and offered a bigger payment to bondholders, provided they sign on.
The plan, key to Lehman's exit from the largest bankruptcy in U.S. history, comes after an earlier version filed in April met strong opposition from hedge fund Paulson & Co, the California Public Employees Retirement System (Calpers) and other bondholders. It was filed late on Tuesday.
The plan proposed increasing payments to the holding company's senior unsecured creditors, which includes the bondholders, to 21.4 percent of their claims from 14.7 percent. But there is a catch: they must vote to accept the plan.
In addition, those holding derivative and general unsecured claims against the holding company must also vote to accept the plan, a move that appears aimed at avoiding a lengthy court battle.
If one of those three creditor groups rejects the plan, they all receive lower proposed payments of between 15 and 17 percent.
The key point here is that we are looking for all creditors to make a compromise on their claim and recovery, Lehman President John Suckow said in a telephone interview on Wednesday.
The new plan has many compromises that are similar to those proposed by the bondholders, he said.
It does a pretty good job of incorporating the many constructive ideas we've received from all the constituencies throughout the world, he said.
LEHMAN REJECTS CONSOLIDATION
The ad hoc group of bondholders, which says it has about $20 billion of claims, had objected to Lehman's previous plan saying that it favored large banks who were creditors of the derivatives business over other creditors.
A spokesman for the bondholder group could not immediately be reached for comment.
Lehman submitted its revised plan in a filing to a U.S. bankruptcy court in New York. Creditors need to vote in favor of the plan before it goes to Judge James Peck for approval some time later this year. Lehman will be able to begin paying them back after receiving that approval.
Lehman rejected an approach used by the ad hoc bondholder group in its own blueprint for repaying creditors. The ad hoc group argued that Lehman should combine all of its assets from across its corporate family and then pay out claims, which they argue would distribute assets more equally and boost payouts to bondholders.
Under Lehman's revised plan, each of the 23 corporate entities would pay its own claims with its own assets.
Suckow said the ad hoc committee's approach would lead to lengthy litigation.
$60 BLN IN ASSETS EXPECTED
Lehman filed for Chapter 11 protection on September 15, 2008, with $639 billion of assets -- six times as much as any other U.S. company to go bankrupt.
It sold its prime investment banking platform to Barclays Plc within days of its bankruptcy filing, and it has since sold other assets or prepared them for sale to raise money for repaying creditors.
Earlier this month, Lehman Chief Executive Bryan Marsal estimated that Lehman would pay out about $60 billion on its $322 billion in allowed claims, or about 18.6 cents on the dollar, though some creditors will receive more and others less.
More than $1 trillion in claims were filed against Lehman after its collapse, but many were dismissed.
The competing plan filed by bondholders in December would have increased their own payouts to 24.5 cents on the dollar, while derivatives creditors would receive 25.7 cents.
Creditors of Lehman's derivatives business would receive 22.3 cents on the dollar under Lehman's new plan, plus another 12 percent from the parent company for guarantees on their claims, or a total of 34.3 cents. Under the previous plan, they would have received a total of about 38.8 cents.
The case is In re: Lehman Brothers Holdings Inc, U.S. Bankruptcy Court, Southern District of New York, No. 08-13555.
(Reporting by Tom Hals; Additional reporting by Caroline Humer and Dena Aubin in New York; Editing by Erica Billingham and Matthew Lewis)