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Lehman May 15
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Lehman Sues Federal Home Loan Bank of N.Y. Over Interest-Rate Swaps
May 15, 2015 | The Wall Street Journal
By Patrick Fitzgerald
Lehman Brothers Holdings Inc. is suing the Federal Home Loan Bank of New York for more than $150 million over dozens of soured interest-rate swaps. Lehman and its Special Financing unit sued Federal Home Loan Bank, or FHLBNY, on Wednesday in U.S. Bankruptcy Court in New York over payments it says are due from its position on 356... -
Lehman Sues Federal Home Loan Bank Over $150 Million Payout
May 14, 2015 | Bloomberg
By Erik Larson
Lehman Brothers Holdings Inc. sued the Federal Home Loan Bank of New York, claiming it failed to pay out more than $150 million when it terminated swaps in 2008 as the remnants of Lehman’s estate seek cash to pay creditors more than six years after its collapse. The Federal Home Loan Bank terminated 356 mostly ... -
Lehman Says In Swap Suit It Was Cheated Out Of $150M
May 14, 2015 | Law360
By Jonathan Randles
Lehman Brothers Holdings Inc. on Wednesday accused the Federal Home Loan Bank of New York of cheating it out of more than $150 million by undervaluing numerous interest rate swaps that went belly up after the investment bank collapsed in 2008. The lawsuit, filed by Lehman and Lehman Brothers Special Financing Inc., concerns... -
Lehman Ruling Preserves Buyside Calculation Rights
May 14, 2015 | IFR Asia
By Mike Kentz
An English High Court has ruled that Lehman Brothers Finance AG must pay US$61.5m plus interest to pension provider Fondazione Enasarco relating to a put option the Italian firm terminated with the bank following Lehman’s 2008 bankruptcy filing. High Court Justice David Richards ruled that Fondazione Enasarco’s calculation of the cost...
Client Attorney Privileged/Attorney Work Product/At Request of Counsel
Federal Home Loan Bank of New York
Fondazione Enasarco
Full Text of Stories Below
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Lehman Sues Federal Home Loan Bank of N.Y. Over Interest-Rate Swaps
May 15, 2015 | The Wall Street Journal
By Patrick Fitzgerald
Lehman Brothers Holdings Inc. is suing the Federal Home Loan Bank of New York for more than $150 million over dozens of soured interest-rate swaps.
Lehman and its Special Financing unit sued Federal Home Loan Bank, or FHLBNY, on Wednesday in U.S. Bankruptcy Court in New York over payments it says are due from its position on 356 swaps and options transactions. Lehman says it was in the money on the swaps at the time of its 2008 bankruptcy filing.
Although Lehman officially exited bankruptcy protection in 2012, its derivatives team is still wrangling with creditors over billions of dollars in disputed claims. Swaps and other derivatives represent a significant source of cash for Lehman creditors waiting to be paid more than six years after the investment bank filed for bankruptcy protection
Lehman’s chapter 11 filing at 1:45 a.m. on the morning of Sept. 15, 2008, froze financial markets and constituted an “event of default” that triggered the termination of millions of derivatives transactions involving the investment bank. Three days later on Sept. 18, FHLBNY terminated its swaps with a notional amount of $16.5 billion with the bankrupt investment bank.
The date of termination is a key to the dispute, Lehman’s lawyers said in the suit.
Because of fluctuations in interest rates markets after Lehman filed for bankruptcy, FHLBNY went back and “cherry picked” other termination dates, the lawsuit claims, leading the bank “to massively understate” what it owed Lehman.
FHLBNY, which had entered into replacement swaps with other counterparties after Lehman’s collapse, initially said Lehman owes it about $64.5 million. The bank, which said it was impossible to properly value the swaps in the days after Lehman’s collapse, later amended the amount Lehman allegedly owed to $44.9 million.
FHLBNY is one of 12 regional home loan banks, which are cooperatives chartered by Congress and owned by more than 8,000 banks, thrifts, credit unions and insurers. They make loans, backed by home mortgages and other collateral, to their owners.
In general terms, FHLBNY used the swaps with Lehman as a hedge against rising interest rates with the bank paying a fixed rate to Lehman and the investment bank paying a floating rate. If rates fall, Lehman is in the money.
Lehman is asking U.S. Bankruptcy Judge Shelley C. Chapman judge to toss FHLBNY’s claims and to award it more than $150 million plus interest. With interest, FHLBNY could owe $268 million to Lehman.
A lawyer for FHLBNY wasn’t immediately available for comment...
For full story:
http://www.wsj.com/articles/lehman-sues-federal-home-loan-bank-of-n-y-over-interest-rate-swaps-1431627208
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Lehman Sues Federal Home Loan Bank Over $150 Million Payout
May 14, 2015 | Bloomberg
By Erik Larson
Lehman Brothers Holdings Inc. sued the Federal Home Loan Bank of New York, claiming it failed to pay out more than $150 million when it terminated swaps in 2008 as the remnants of Lehman’s estate seek cash to pay creditors more than six years after its collapse.
The Federal Home Loan Bank terminated 356 mostly interest-rate swaps for Lehman Brothers Special Financing Inc. three days after the parent’s bankruptcy filing on Sept. 15, 2008, according to a complaint filed in U.S. Bankruptcy Court in Manhattan Wednesday. The lender allegedly complicated the matter by filing a $130 million claim in the bankruptcy case.
The government-backed bank’s valuation of the swaps “was commercially unreasonable and inconsistent,” Lehman said.
Lehman and its brokerage unit began separate bankruptcies in September 2008. The New York-based parent’s reorganization plan was approved in December 2011 and implemented in March 2012...
For full story:
http://www.bloomberg.com/news/articles/2015-05-14/lehman-sues-federal-home-loan-bank-of-n-y-seeking-swaps-payout-i9oj35w6
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Lehman Says In Swap Suit It Was Cheated Out Of $150M
May 14, 2015 | Law360
By Jonathan Randles
Lehman Brothers Holdings Inc. on Wednesday accused the Federal Home Loan Bank of New York of cheating it out of more than $150 million by undervaluing numerous interest rate swaps that went belly up after the investment bank collapsed in 2008.
The lawsuit, filed by Lehman and Lehman Brothers Special Financing Inc., concerns FHLBNY's termination of some 356 swaps and derivative transactions on September 18, 2008 — three days after Lehman rocked financial markets by filing for Chapter 11.
Lehman's attorneys say FHLBNY was required under the terms of a contractual agreement and the U.S. bankruptcy code to assess the value of the swaps at the time they were terminated. The timing is crucial to Lehman because at the time the swaps were terminated, Lehman was “in the money”, meaning FHLB owed it a “substantial termination payment.”
Instead, with the markets in turmoil, FHLBNY chose to value the swaps over a period of time which allowed the bank to “massively understate” the value of the transactions, according to the complaint. The lawsuit says FHLB's decision was part of a ploy to “play the market” at Lehman's expense.
During the course of the bankruptcy, FHLBNY has filed claims seeking tens of millions of dollars related to the swaps. Lehman says those claims should be expunged because FHLBNY is the party actually on the hook for termination payments.
“FHLB should have paid LBSF a termination payment of more than $150 million and has to date paid LBSF nothing at all while claiming that LBSF owes it millions of dollars,” the lawsuit said.
The parties have engaged in settlement talks since early 2010 but so far have been unable to strike a deal resolving the dispute, the lawsuit said.
In a March 31 U.S. Securities and Exchange Commission filing, FHLBNY said it believes Lehman's claims are "without merit." A spokesman for FHLBNY declined to comment on the lawsuit Thursday...For full story:
http://www.law360.com/articles/656202/lehman-says-in-swap-suit-it-was-cheated-out-of-150m
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Lehman Ruling Preserves Buyside Calculation Rights
May 14, 2015 | IFR Asia
By Mike Kentz
An English High Court has ruled that Lehman Brothers Finance AG must pay US$61.5m plus interest to pension provider Fondazione Enasarco relating to a put option the Italian firm terminated with the bank following Lehman’s 2008 bankruptcy filing.
High Court Justice David Richards ruled that Fondazione Enasarco’s calculation of the cost of replacing a structured derivative contract the insurer had bought in December 2007 from Lehman was ‘reasonable’ and ‘in good faith,’ as well as procedurally correct under the 1992 ISDA Master Agreement.
The ruling is a win for buyside firms as it preserves a wider scope of calculation capabilities in the event a derivative contract is terminated. A Lehman win would have tightened restrictions on the buyside when replacing a terminated contract.
“The High Court’s ruling establishes a standard for ‘reasonable’ and ‘good faith’ calculations of the value of such a complex derivative following termination – that can be a thorny matter,” said Simon Fawell, partner at Sidley Austin, which acted as counsel to Enasarco in the case.
“It also upholds the idea that in calculating termination amounts under the Loss Provision of the 1992 ISDA Master Agreement, the best evidence to rely on is in most circumstances a quote from another bank – rather than a proprietary model. That gives parties calculating termination amounts considerable comfort if they follow this route.”
The dispute centred around a put option sold by Lehman to Fondazione Enasarco through a special purpose vehicle known as Anthracite Rated Investments Cayman (ARIC) in 2007.
The contract provided protection on Enasarco’s investment — if the purchased notes did not perform to a specified level, Lehman had agreed to make up the difference.
The contract was terminated in 2008 but not replaced until 2009 — a time-gap Lehman argued was procedurally flawed. Justice Richards ruled the time horizon was acceptable.
The ruling also preserves some of the attractive characteristics of the SPV model for structured derivative transactions.
The model was used pervasively prior to the crisis but has slowed since. The use of a legal entity like ARIC separate from the Lehman parent company is helpful from a bankruptcy perspective – the issuer in this and most cases does not go under when the parent firm files for bankruptcy.
Lehman had argued that ARIC should be responsible for calculating the value of the derivative, not Enasarco. Richards denied that notion – had ARIC been given responsibility over calculating termination value it would have made the SPV model less tenable for buyside firms going forward...
For full story:
http://www.ifrasia.com/lehman-ruling-preserves-buyside-calculation-rights/21198623.article
Client Attorney Privileged/Attorney Work Product/At Request of Counsel
Federal Home Loan Bank of New York
Fondazione Enasarco
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