Lehman July 28

Client Attorney Privileged/Attorney Work Product/At Request of Counsel

Massachusetts

1. Lehman Says Massachusetts Shorted It $10M In Swaps

   Jul 28, 2015 | Law360

   By Dani Kass
   
   
   Lehman Brothers Holdings Inc. on Friday sued the Commonwealth of Massachusetts in New York bankruptcy court, alleging that the state owes the company $10.3 million more than it paid for six terminated interest rate swaps. The suit alleges that Massachusetts manipulated the market quotation process to reduce how much it owed to...

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Client Attorney Privileged/Attorney Work Product/At Request of Counsel

Massachusetts

1. Lehman Says Massachusetts Shorted It $10M In Swaps

   Jul 28, 2015 | Law360

   By Dani Kass

   Lehman Brothers Holdings Inc. on Friday sued the Commonwealth of Massachusetts in New York bankruptcy court, alleging that the state owes the company $10.3 million more than it paid for six terminated interest rate swaps.
   
   The suit alleges that Massachusetts manipulated the market quotation process to reduce how much it owed to Lehman Brothers Special Financing Inc., violating its original agreement. The termination came after LBSF filed for Chapter 11 bankruptcy in October 2008.
   
   “As a result of this manipulation, the commonwealth’s calculation under the market quotation method did not come close to reflecting the economic value of the transactions on the termination dates, as evidenced by the fact that it was millions of dollars less than the amount of upfront cash payments the commonwealth received when it entered into replacement transactions on those very same dates,” the complaint states.
   
   In August 1998, LBHI and Massachusetts agreed to an interest rate swap with $300 million notional of the state’s general obligating refunding bonds. Massachusetts agreed to make monthly fixed-rate payments with 4.174 percent interest annually to LBHI, which in turn would pay a floating rate of interest based on the weighted average rate of interest paid by the state on the bonds, according to the complaint.
   
   When LBHI filed for Chapter 11 in September 2008, the parties agreed not to terminate the agreement but to amend it, transferring the power to LBSF. That agreement said that if LBSF filed for bankruptcy, Massachusetts could terminate the swaps and decide how much should be paid, using the market quotation process, according to the suit.
   
   In 2003, LBHI and Massachusetts entered into a separate agreement regarding five interest rate swaps. Both LBSF and LBHI entered into separate confirmations for the transactions. The state agreed to make semiannual fixed-rate payments of 4.5 percent annually and LBSF was to make inflation adjusted semiannual floating-rate payments to the commonwealth. The payments were based on an original $10 million, according to the suit.
   
   When LBSF filed for bankruptcy in October 2008, Massachusetts said that it would terminate the agreements, but LBSF objected to how much the commonwealth said it owed the bank. They had agreed that in the case of a bankruptcy, the nondefaulting party would get bids from four leading lenders.
   
   “[T]he commonwealth first solicited quotations from an improper number of dealers, and then manipulated the outcome of its market quotation calculation by opportunistically selecting which bids to include in that calculation,” the complaint states.
   
   The bank said that two quotations the state received were concealed from it.
   
   “The omission of these competitive bids alone improperly reduced the outcome of the market quotation calculation by millions of dollars, and insured that the commonwealth’s calculation did not reflect the true economic value of the transactions,” according to the suit.
   
   The bank is asking for to-be-determined damages, with interest...

   For full story:

   http://www.law360.com/articles/683866/lehman-says-massachusetts-shorted-it-10m-in-swaps
   

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