Lehman's US arm pulls plug on $210m deal with investors
Dozens of councils, charities and churches have been embroiled in a long-running legal action against the investment bank over highly-complex debt securities sold by it and its Australian predecessor, Grange Securities, before the bank collapsed in 2008. The AAA-rated products plunged in value, inflicting hefty losses.
Earlier this year, the saga appeared to be reaching a conclusion when the clients arrived at a tentative agreement with liquidators and other creditors, including Lehman Asia, for up to $210 million, or 50¢ in the dollar, to be returned to clients.
However, Lehman Asia assigned its creditor rights recently to a US arm of Lehman Brothers, which opposed the proposal at a creditor meeting on Wednesday.
The liquidators decided to adjourn the process, forcing councils and charities back to the negotiating table.
IMF (Australia) managing director John Walker, who is representing the councils and charities, said it was a frustrating development for the non-profit organisations that had been pursuing their money for up to seven years.
"We feel that it's in our interests that we simply get on with this," Mr Walker said after the meeting. "The US companies are not coming to negotiate on a principled basis, it's our understanding that they simply want the money."
Philip Hoser, a partner at Jones Day, representing Lehman Brothers Holding Company of the US, would not comment beyond saying: "We are continuing in dialogue with the liquidators."
The delay is a blow to councils and charities involved in the claim, and they could face a wait of up to two years to get any money back.
Colin Cameron, an executive at City of Swan, a West Australian council leading a class action against Lehman, said it was "very disappointing" that the US arm of Lehman had not provided a reason for its position.
"Lehman Asia thought it was appropriate but the New York people have bought up their rights and are trying to stymie it," he said.
"We will continue to push hard with the liquidator to try to make it a speedy resolution."
The two liquidators, Steve Parbery and Marcus Ayres of PPB Advisory, said they had adjourned the meeting to preserve the value of previously-agreed insurance settlements worth $48 million and to give the US arm of Lehman time to review the proposal.
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A proposed settlement that would have returned up to $210 million to dozens of local councils, charities and churches was blocked after the US arm of Lehman Brothers opposed the deal at a creditor meeting. The liquidators adjourned the process, delaying the payout and sending the parties back to the negotiating table.
The tentative agreement earlier this year was for up to $210 million — about 50 cents in the dollar — intended to be returned to affected councils, charities and churches that lost money on complex debt securities sold before Lehman’s 2008 collapse.
They invested in highly complex debt securities (including AAA-rated products) sold by Lehman Brothers and its Australian predecessor, Grange Securities, which later plunged in value and inflicted heavy losses on these non-profit investors.
Lehman Asia had previously supported the proposal, but Lehman Asia assigned its creditor rights to a US arm of Lehman Brothers. That US arm opposed the proposal at the creditor meeting, prompting the liquidators to adjourn to preserve other settlements and allow further review.
IMF (Australia) managing director John Walker is representing the councils and charities involved in the claim, and some councils are also pursuing class action litigation (for example, the City of Swan in Western Australia).
The liquidators, Steve Parbery and Marcus Ayres of PPB Advisory, adjourned the meeting to preserve the value of previously-agreed insurance settlements worth $48 million and to give the US arm of Lehman time to review the proposal. They said they are continuing dialogue with the parties involved.
According to the article, the delay could mean councils and charities face a wait of up to two years to recover any funds, depending on how negotiations and creditor processes proceed.
For everyday investors, the story highlights the risks of complex structured products and the reality that recovery after a major default can be lengthy and uncertain. It also shows how creditor rights and cross-border claims (for example, assignments to a US arm) can complicate and delay settlements for investors.
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