Lehman Forced to Revise Bankruptcy Exit Plan

After some creditors rejected Lehman Brothers' Chapter 11 proposals, the company revised its plan to exit bankruptcy, filing a new plan in New York, Bloomberg reported Wednesday.

The plan didn't list a voting deadline for creditors or propose a date for the confirmation hearing, Bloomberg reports. Lehman will start soliciting votes for the plan after the summer, and final court approval may be near the end of the year.

Lehman plans to raise $61 billion by selling assets and reducing allowable claims to $322 billion, Bloomberg reports. The average Lehman creditor would receive 18.6 cents on the dollar, and senior bondholders would receive 21.4 cents. Creditors with general unsecured claims would receive a 19.8% return, according to Bloomberg.

Derivatives creditors, which include Goldman Sachs, Morgan Stanley, Credit Suisse, Deutsche Bank and Bank of America, would get 22.3 cents, Bloomberg reports. As of the third quarter of 2010, Lehman had settled over 45% of derivatives transactions made by the Lehman Brother Special Financing unit. When Lehman filed for bankruptcy it was involved in 1.2 million derivatives transactions.

Hedge fund Paulson & Co. and other creditors with large claims against Lehman Brothers argued that Lehman's original plan "created conflict among creditors of Lehman's units," and offered their own plan in December, Bloomberg reports. In that plan, bondholders received 24.5 cents, and derivatives creditors received 25.7 cents. The group, which includes the California Public Employees’ Retirement System, PIMCO and Canyon Partners LLC, a Los Angeles-based $19 billion hedge fund, hold $80 billion in claims against Lehman, Bloomberg writes.

Lehman's revised plan incorporates elements of the Paulson plan and offers bondholders more money than the original plan, which proposed giving creditors 17 cents. If the Paulson group opposes the revised plan, their payout will be reduced to the original amount, Bloomberg reports.

“We think this is the fairest way to deal with all the legal issues,” Lehman President John Suckow told Bloomberg by phone Wednesday. “We’re hoping to get people to rally around this plan in coming weeks and months.”

At the end of 2010, Lehman held $24 billion in cash and $37 billion in real estate, private equity and other assets, Bloomberg writes.