CalPERS and Other Bondholders Say Lehman Bankruptcy Plan Fuels Conflict

(June 29, 2010) — The California Public Employees’ Retirement System (CalPERS), the largest US pension, and a handful of other Lehman Brothers Holdings Inc’s creditors said they object to the investment bank’s Chapter 11 bankruptcy plan. With $639 billion of assets, its bankruptcy is six times larger than any other in U.S. history.

In a filing in Manhattan bankruptcy court on Tuesday, the group of a dozen hedge funds, pension funds and asset managers said Lehman’s current bankruptcy plan to establish a “pot of assets” to pay back creditors is “seriously flawed” and would cause conflicts, Reuters reported. The group said the plan would result in unnecessary lawsuits while delaying the deserved recovery of tens of billions of dollars.

The creditors, which includes the $211 billion CalPERS and Paulson & Co, a $35 billion hedge fund firm run by billionaire John Paulson, said they are owed a total of $15.5 billion. On April 14, Lehman, which has trimmed claims to about $700 billion from more than $1 trillion originally, said it is offering creditors recoveries ranging from 14.7 cents on the dollar to 44.2 cents.

Bryan Marsal, one of the founders of the restructuring firm handling Lehman’s Chapter 11 case, told the Wall Street Journal that Lehman’s compromise plan provides a fair, just and efficient resolution to the bankruptcy case. “While some creditors might have an advantage in substantive consolidation, others would be significantly disadvantaged,” said Marsal to the WSJ. “As a result, this approach would require substantial time and expense–including costly multi-jurisdictional litigation that would take years to resolve and have an uncertain outcome.”

The additional creditors in the group are Canyon Capital Advisors LLC, Fiduciary Counselors Inc, Fir Tree Inc, Fortress Credit Opportunities Advisors LLC, Gruss Asset Management LP, King Street Capital Management LP, Owl Creek Asset Management LP, San Mateo County in California, Taconic Capital Advisors LP and Western Asset Management Co.

Since Lehman filed for bankruptcy protection on September 15, 2008, more than 65,000 claims have been filed by creditors against Lehman entities.