Lehman Europe creditors in line for extra $8 billion payday

Tue Mar 4, 2014 7:03pm EST
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By Steve Slater

LONDON (Reuters) - 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 15 months.

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.   Continued...

The Lehman Brothers booth on the trading floor of the New York Stock Exchange, September 16, 2008. REUTERS/Brendan McDermid