Lehman 4/6

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LBSF Settlement

1. Lehman Settles Dispute Over $40M Swap Fund

   Apr 6, 2015 | Law360

   By Cara Salvatore
   
   
   Lehman Brothers Special Financing Inc. has reached a settlement over money remaining from a $41 million account connected to a swaps deal that U.S. Bank NA is the trustee of, it told a New York bankruptcy judge Friday.

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

LBSF Settlement

1. Lehman Settles Dispute Over $40M Swap Fund

   Apr 6, 2015 | Law360

   By Cara Salvatore

    Lehman Brothers Special Financing Inc. has reached a settlement over money remaining from a $41 million account connected to a swaps deal that U.S. Bank NA is the trustee of, it told a New York bankruptcy judge Friday.
   
   In 2011, the trust put $40.5 million into an account to be used under certain circumstances. In the event of a default by LBSF, the certificate holders were supposed to get payback priority, they said, under a 'priority flip.' But plan administrator Lehman Brothers Holdings Inc. said LBSF should have been paid first, under legal precedent.
   
   There's $5.2 million remaining in the account now, after previous settlements, and the parties are seeking court approval to close out this last slice.
   
   Trustee U.S. Bank "has advised LBSF that it is prepared to enter into the settlement agreement regarding the approximately $5.185 million of remaining collateral proceeds,” the document said.
   
   Under a related adversary proceeding, LBSF had said the bankruptcy code was being violated here because the alleged priority flip modified debtors' property interests.
   
   The trustee said he had tried to contact the certificate holders to work it out, and those talks led to today's settlement. In fact, $30 million of the money has already been distributed amicably, according to the filing.
   
   Under the deal, pending court approval, the trustee would pay fair and reasonable amounts to the certificate holders, and then, if any money is left over, pay remaining money to LBSF.
   
   A hearing on the motion is scheduled for May 5.
   
   In October, LBSF asked a New York federal judge to certify a 150-defendant class in Lehman's suit claiming that a crucial contract clause destroyed $3 billion worth of its payment rights, saying it was a “paradigmatic” example of a case whose issues should be litigated in concert.
   
   The case concerns the “flip clauses” present in synthetic-CDO contracts with eight investment-bank trustees plus dozens of issuer defendants and noteholder defendants. Lehman says the clause violates the Bankruptcy Code by invalidating the contracts in the event of insolvency.
   
   “This is a paradigmatic case for certification,” Lehman told the court at the time. The plaintiff says that the bankruptcy triggered a switch of payment priorities and put the noteholders in line ahead of Lehman for payments of about $3 billion.
   
   Bankruptcy Judge James M. Peck has ruled in the past that such modifications are unenforceable. In 2009 he adjudicated a similar adversary proceeding from Lehman against BNY Corporate Trustee Services Ltd., concluding that LBSF was entitled to judgment as a matter of law that the payment status switch violated Sections 365 and 541 of the Bankruptcy Code.
   
   LBSF is represented by Richard Slack and Jacqueline Marcus of Weil Gotshal & Manges LLP.
   
   The adversary proceedings are Lehman Brothers Special Financing Inc. v. U.S. Bank NA et al., case number 1:10-ap-03546, and Lehman Brothers Special Financing Inc. v. Bank of America NA et al., case number 1:10-ap-03547, in the U.S. Bankruptcy Court for the Southern District of New York.
   
   The bankruptcy is In re: Lehman Brothers Holdings Inc., case number 08-bk-13555, in the U.S. Bankruptcy Court for the Southern District of New York.
   

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