* Unsecured creditors get 100 pct payout on claims
* Gamble pays for hedge funds, distressed debt investors
* Creditors could get 5 bln stg more, await ruling
* Liquidity is key for bank recovery plans-administrator
By Steve Slater
LONDON, March 5 Hedge funds, asset managers and
other creditors of Lehman Brothers' European arm will next month
be fully paid out from money recovered from the carcass of the
bank and could get an extra 5 billion pounds ($8.4 billion).
PwC, the administrator of Lehman Brothers International
Europe (LBIE), is paying a fourth dividend of 7.8 pence in the
pound to unsecured creditors on April 30, which will lift
payouts to 100 percent after three bigger dividends in the past
PwC estimated another 5 billion pounds of surplus cash could
be paid to creditors, but any extra cash cannot be paid until
there is agreement on how it is shared.
"Five billion pounds is a reasonable estimate. It depends on
where we end up with the further recoveries of cash we are
seeking and the quantity of creditors whose claims will
eventually be agreed," said Tony Lomas, lead administrator for
LBIE and partner at PwC.
That means hedge funds and other specialist distressed debt
investors who gambled on how much money could be recovered from
LBIE could make hundreds of millions of pounds, albeit after
waiting several years.
It is hard to track the owners of the debt, but Lomas said
more than half was in the hands of distressed debt investors.
Industry sources have said investors have included big names
such as Baupost Group and Elliott Management.
Creditors' claims are trading at near 145 percent in a
secondary or "grey" market, indicating investors expect more
than 5 billion pounds of surplus will be paid. That grey market
price plunged as low as 10 percent in the weeks after Lehman's
collapse, but has steadily risen in the last five years.
The collapse of U.S. investment bank Lehman Brothers in
September 2008 plunged the global financial system into chaos
and its European arm, based in London, was the largest and most
complex part of the group because it was a hub for trading and
investments spanning asset classes and dozens of countries.
The administrators have recovered money by unwinding
derivatives contracts and share trades, and winning several
legal battles over other parts of the former bank.
Lomas said the full payout of claims showed regulators and
central banks developing plans to prevent a repeat of the
financial crisis need to make sure banks have enough liquidity
to withstand a crisis, and not just focus on capital strength.
"In times of distress customers panic and want their money
or assets back, so in a major, complex financial institution the
liquidity needs will be as significant as the balance sheet
needs," Lomas said.
PwC is expected to return about 40 billion pounds in total
to LBIE's creditors, including near 23 billion pounds for trust
claimants and about 16 billion pounds for up to 3,400 unsecured
Surplus cash could be paid later this year if creditors
agree to a proposal to be made soon made by PwC, which will
propose a split based on interest payments, foreign exchange
moves and the claims of subordinated debt holders. Unsecured
creditors can get 8 percent interest a year under UK law.