Lehman Brothers Holdings Inc laid out a plan on Wednesday to repay creditors a portion of some $1 trillion in expected claims, under a proposal that could resolve the largest U.S. bankruptcy in history.
Lehman's proposal in a disclosure statement to a U.S. court was the first complete view of how it intended to exit the historic bankruptcy case following its collapse during the global financial crisis in September, 2008.
In its latest filing, it said its plan would "accelerate recoveries to creditors and avoid the potential enormous costs" of extended litigation over creditor issues.
Lehman estimates that the notional value of its creditors claims will ultimately exceed $1 trillion, but it expects to repay a much smaller amount, according to court documents.
Lehman's unsecured creditors could recover between 15 and 27 percent of their claims while certain secured creditors could be paid in full.
General unsecured creditors of Lehman's parent company would receive 14.7 percent while general unsecured creditors of Lehman Brothers Special Financing unit, which holds many of its derivatives positions, are expected to recover about 24 percent.
Unsecured creditors of Lehman's Commodity Services unit which holds commodities positions, could recover about 26.8 percent of their claims.
Lehman last month proposed creating a new company called LAMCO to wind down its remaining assets and operations.
LAMCO, which is currently searching for a strategic partner or equity backer, would continue to manage Lehman's private equity investments, real estate assets, derivatives and other long term assets.
It will seek approval to create that company at a hearing later on Thursday in U.S. bankruptcy court in Manhattan. Lehman estimated it has collected $8.8 billion on derivative contracts and could recover an additional $5.4 billion on outstanding contracts.
Lehman said it expected its real estate investments could return an additional $11 billion through 2014 while its loans could recover $7.2 billion and its private equity investments could generate $9.6 billion.
Lehman's real estate investments include the upmarket Archstone apartment complexes in major U.S. cities, while its private equity and investment interests include its retained stake in its former Neuberger Berman wealth management unit, which it sold earlier in the case.
Lehman said it would expect to recover $1 billion to $2 billion on a sale of its interests in its Aurora and Woodlands bank units in the next year or two.
CHAPTER 7 SCENARIO
If Lehman's reorganization plan is approved by the court, it could soon be put to a vote by creditors.
However, Lehman said that if its plan is not approved it may seek to put all of its creditors in a single repayment pool, under a bankruptcy process called "substantive consolidation," or the case could be converted to a liquidating Chapter 7 bankruptcy run by a court-appointed trustee.
If Lehman were liquidated under a Chapter 7 bankruptcy instead of using its current proposed plan, Lehman's investment bankers at Lazard estimated general unsecured creditors would receive only 7 percent of their claims.
DELAYED DISCLOSURE STATEMENT
Lehman had delayed filing its disclosure statement for a month because it said it wanted to include the details from a report by Lehman's court-appointed examiner in the disclosure statement.
When it filed for bankruptcy, Lehman listed more than $600 billion of assets.
It quickly sold its biggest units like its core U.S. brokerage and Neuberger Berman wealth management subsidiary, but hundreds of Lehman employees hired by the bankruptcy estate have been managing the company's long-term investments in real estate and private equity since the bankruptcy.
Banks which bought Lehman assets at the time of its collapse reaped windfalls in an emergency auction, a court-appointed examiner said.
The case is In re: Lehman Brothers Holdings Inc, U.S. Bankruptcy Court, Southern District of New York, No. 08-13555.
(Reporting by Sakthi Prasad in Bangalore and Emily Chasan in New York; Editing by David Cowell)