• Lehman Files Revised Reorganization Plan
  • April 26, 2010
  • Law Firm: Alston & Bird LLP - Atlanta Office
  • More than 18 months after commencing the largest bankruptcy case in U.S. history, on Wednesday, Lehman Brothers Holdings Inc. (Lehman Holdings) and its affiliated debtors (collectively Lehman) filed a revised reorganization plan with the U.S. Bankruptcy Court for the Southern District of New York. The plan addresses over $1 trillion in expected claims and calls for the liquidations of Lehman Holdings, the parent company, and 22 subsidiaries that filed for bankruptcy under Chapter 11 in the U.S. Hundreds of international subsidiaries are also in the process of being liquidated, but the international liquidations will not be completed for approximately 3 to 5 years.

    Under the plan, Lamco LLC, a newly created company staffed with former Lehman employees, would manage certain of Lehman’s assets and operations, including commercial real estate, residential mortgages, private equity and other remaining assets. This element of the reorganization plan deviates from the norm because its primary purpose would not be the prompt liquidation of assets and operations. Instead, Lehman proposes that Lamco continue to operate the business for approximately three years before liquidating the majority of the assets. The theory is that if Lehman were to promptly liquidate all its assets, it would only be able to pay creditors, with allowable claims of $294 billion, approximately $25 billion, or 9 cents on the dollar; however, if Lehman operates the business for three years, it could pay approximately $41 billion within five years. In addition, continued operations would preserve hundreds of jobs and would utilize the infrastructure already in place. Judge James Peck, presiding over the case, said he had “never seen anything quite like this,” but relied on the “apparent business judgment that there are significant upside opportunities to be realized from this structure.”

    One major point of controversy relates to the ownership of Lamco. Several major creditors believe that a plan which calls for 100% ownership of Lamco by Lehman Holdings is a “plan for debtors’ employees and management separate, apart and ahead of the reorganization plan for creditors.” Lehman has resisted creditors’ call for a significant ownership stake in Lamco, but stated on Wednesday that it would “enhance the governance right” of the creditors committee by granting the committee the right to appoint one independent director to Lamco’s board, which is currently planned to have nine members. After agreeing to this concession, Lehman requested that Judge Peck overrule any further objections raised by the creditors.

    Under Lehman’s reorganization plan, creditors could recover the following percentages of their respective investments:

    • Secured creditors could be paid in full;

    • Unsecured creditors of Lehman could recover 15-27%;

    • Unsecured creditors of Lehman Brothers Special Financing Inc., which holds a substantial portion of Lehman’s derivatives portfolio, could recover 24%; and

    • Unsecured creditors of the Commodity Services Inc., which holds Lehman’s commodities portfolio, could recover 26.8%.