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BW Businessworld

Goldman, Banks Offer Lehman A Plan

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The group, comprised of more than 20 banks and hedge funds, filed the plan on Monday in US Bankruptcy Court in Manhattan, the third proposed restructuring plan since Lehman declared bankruptcy in September 2008. The plan would boost recoveries for the banks and keep separate the assets of Lehman's bankrupt subsidiaries.

The plan would provide nearly 41 per cent recovery on claims for creditors of Lehman's derivatives business, which include the plan's authors, and only 16 per cent recovery for bondholders.

That stands as a stark departure from a competing proposal filed in December by a bondholder group led by hedge fund Paulson & Co, under which derivatives creditors would receive 25.7 per cent recovery and the bondholders 24.5 per cent.

Lehman has also filed its own restructuring plan, which it has touted as a compromise that would provide 34 per cent recovery for derivatives creditors and 21.4 per cent for bondholders.

A spokeswoman for Lehman said the company is reviewing the new plan. Representatives for the Paulson Group declined to comment.

Attorneys for the banks did not return telephone calls.

Monday's proposal follows weeks-long speculation as to whether creditor banks would file a competing plan. It comes just ahead of an April 29 filing deadline for creditors who want their competing proposals to be part of a June hearing to help decide whether plans should be sent to creditors for a vote.

No Consolidation
The derivatives creditors, which also include Silver Point Capital LP, The Royal Bank of Scotland Plc and Deutsche Bank AG, steadfastly oppose consolidation, a process by which the assets of a bankrupt company are merged into a single asset pool.

Because consolidation merges a company's strongest and weakest assets, creditors of healthier entities tend to oppose it, while creditors of weak arms favor it.

The Paulson group called for consolidation in its plan proposal, saying separate entities would unfairly benefit creditors who engaged in risky derivatives trading with disproportionately high payouts.

Lehman's plan would not consolidate the estate, but would redistribute certain assets to benefit creditors who stand to face especially meager recoveries.

The plans come as different groups jostle to see who will be able to recoup money they lost when Lehman filed for Chapter 11 protection, reporting $639 billion of assets, six times more than any other US company to go bankrupt.

The case is In re Lehman Brothers Holdings Inc, US Bankruptcy Court, Southern District of New York, No. 08-13555.