Lehman Brothers Holdings on Monday filed a plan with the U.S. bankruptcy court in Manhattan to wind down its remaining assets and operations — and end the largest U.S. bankruptcy case in history.
Under the proposed Chapter 11 plan, a newly created business called Lamco would manage what is left of Lehman's commercial real estate, mortgages, principal investments, private equity, corporate debt and derivatives assets.
Lehman filed for bankruptcy on Sept. 15, 2008, listing 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.
Lehman's ability to quickly sell its core assets and then propose an end to its bankruptcy about a year and a half after filing the most complicated case ever was seen as a triumph for the U.S. bankruptcy system.
"Lehman went in and there was real concern whether bankruptcy could handle something like that," Jack Williams, a bankruptcy law professor at Georgia State University, said on Monday. "(The detractors) were wrong then and they're wrong now ... It works for small, medium and gargantuan businesses."
Lehman said the reorganization plan, which it has worked on for months, would provide a global and efficient resolution to the company's bankruptcy, by resolving creditor claims and even those claims that various Lehman entities have against each other.
Secured, administrative and priority creditors would be paid in full under the proposed plan, while general unsecured claims, direct intercompany claims and guarantee claims would in part be satisfied by some "pro rata" cash distributions. Stockholders would receive nothing and their shares would be canceled.
"We firmly believe that the proposed plan represents a fair economic resolution for all Lehman creditors and will accelerate recoveries to creditors," Bryan Marsal, Lehman Brothers' chief executive and co-founder of turnaround firm Alvarez & Marsal, said in a statement.
Lehman said the new Lamco company would provide management services to Lehman, administer its assets and offer long-term employment opportunities for the hundreds of Lehman employees who are currently working to liquidate the former investment bank's estate. For example, it would be expected to continue managing many of the bank's commercial real estate investments, like Archstone-Smith and other properties.
The ability of Lehman to continue to manage assets outside of bankruptcy court would also save money for creditors. Lehman has paid $641.9 million in U.S. professional fees since it filed for bankruptcy, according to a January 2010 report.
David Skeel, a law professor at University of Pennsylvania Law School, said that if Lehman can efficiently resolve its bankruptcy like this, it should raise questions about whether a separate resolution authority is needed to resolve bank failures.
"Considering they were dumped into bankruptcy by the government essentially, it has proceeded better than anyone could have imagined," Skeel said.
"You're not going to have a traditional reorganization in a case with a financial institution. But it can be dealt with effectively."
Lehman did not file a more descriptive disclosure statement, which typically accompanies bankruptcy reorganization plans, because it is seeking more time to include recent findings by the company's bankruptcy examiner in the statement.
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