Expert: Michael T. Hertz - 2/5/2012

Question
QUESTION: There is a debate going on concerning the Lehman Brothers bankruptcy, it looks as if the total allowed claims are going to be $280 billion dollars. However... from what we understand, there is a total estimated recovery/payout plan of $65 billion for creditors. My question is this, Lehman Brothers is liquidating it's assets in the coming years to pay off creditors....when the $65 billion is paid does that mean they are done paying creditors or if they are able to liquidate assets for over the $65 billion amount (for example $100 billion) would the extra $35 billion go to creditors as well? In other words do they pay $65 billion and it's finished or do they keep paying up to the $280 billion in allowed claims? Your help on this is GREATLY appreciated.

ANSWER: That's interesting, because I sold my Lehman bonds quite some time ago and got $6500 on a $30,000 claim, which is about what you're talking about.  I haven't read the plan.

Basically, there are two types of plans.  If they are liquidating everything and claimants get it all, then the $65 billion is just an estimate.  It could be less or it could be more.

On the other hand, if the $65 billion is the cap on distribution (and the company retains anything above that), then you are limited.

As I say, you need to read the plan to know.  But since the $65 billion is an estimate only, then I suspect that you have a "complete liquidation" type of plan, so you really can't tell what you'll get because it's just an estimate.

---------- FOLLOW-UP ----------

QUESTION: Thanks for your reply. It's interesting you held Lehman bonds. Just a followup question while I have you on the line, and to clarify, if there is a "cap on the distribution" and that limit is $65 billion then that is ALL creditors will get correct? However, if there is not a cap and the $65 billion is an estimated recovery then claimants would get everything extra up to the total amount of allowed claims which total $280 billion? I forgot to mention this is a chapter 11 (you probably know that) I hold capital trust preferred shares of the company. The cap trust symbols are LEHNQ/LEHKQ/LEHLQ/LHHMQ $25 face value each. What is interesting about this BK is that all traditional preferred shares and common shares are being cancelled and possibly rolled into a reorganized company down the road but the plan says NOTHING of cancelling cap trust preferred shares. I am going to read the plan to see if there is a cap because if so these shares might continue to trade/or receive money. Is there anything you can think of to add that might help me? Thanks so much I will give you a great review.

Answer
Sometimes the plan is a pot plan (that is, the plan pays say $65 billion and that is divided, and the balance if any is retained by the company going forward).  Sometimes it's a percentage plan (the plan pays xxx% to the unsecured creditors regardless of the amount of claims allowed.  Sometimes it provides for full liquidation, which means that everything gets distributed.

If there is going to be stock in a reorganized company, that would mean that there not be a full liquidation but a result like the first two choices I mentioned.  You should read the plan carefully.  Find the class of claims that your shares are in and then find out how that class is to be treated.  (Note that unsecured creditors are normally treated differently from secured or shareholders.  The latter normally get nothing unless unsecureds are paid in full or get a very high percentage of recovery on their claims.