Hedge funds that gambled on how much money would be recovered from the bankrupt carcass of Lehman Brothers are set to make hundreds of millions of pounds from a full payout to creditors of the European arm.
Five years on from the collapse, payouts to Lehman’s creditors in Europe are on course to top 100 percent some time next year, following a recovery of assets by administrators and legal victories over other parts of the former US investment bank.
“We were reasonably confident there would be some significant funds, but never in our wildest dreams would we have thought it would be 100 pence in the pound,” said Tony Lomas, joint administrator for Lehman Brothers International Europe (LBIE) and partner at PricewaterhouseCoopers (PwC).
The collapse of Lehman Brothers on Sept. 15, 2008, plunged the global financial system into chaos. Its European arm, headquartered in London, was the largest and most complex part of the group because it was a hub for trading and investments, spanning asset classes and dozens of countries.
Closing down the business and trying to recover assets for creditors has involved unwinding thousands of derivatives contracts and share trades and figuring out who owns what, making it the most complex bankruptcy of a single entity ever.
Creditors’ claims now trade between 120 and 135 percent in a secondary or “gray” market for their value, compared with as low as 10 percent in the weeks after the collapse, reflecting an expectation that a premium will be paid.
After creditors are fully paid, LBIE should also have cash left over to pay interest to unsecured creditors — who can get 8 percent a year under UK law — or subordinated bondholders.
However, original creditors, including hedge funds that had Lehman as their prime broker, banks and trade suppliers, such as a photocopying or legal firms, may not all be winners.
“A lot [of original creditors] have sold their claims, particularly as pricing improved and got towards 100 percent,” said Alyson Lockett, partner at UK law firm Simmons and Simmons, who has advised more than 100 original creditors and also worked for distressed debt investors trading the claims.
The list of hedge funds that bought Lehman paper after the bank’s demise reads like a who’s who of so-called “distressed debt” funds, and includes Baupost Group, Elliott Management, King Street Capital and Paulson & Co, industry sources said.
The sources said it was hard to quantify how many of the claims were held by distressed debt specialists, but it could be half or more.
“A significant proportion of these claims is now in the hands of a small collection of distressed debt investors,” Lomas said.
The bankruptcy has turned into one of most lucrative trades since the financial crisis for these largely New York-based funds, which pride themselves on snapping up debt when panicked sellers have rushed for the exit.
Paulson, which led an investor group pushing for a better payout for creditors, started buying Lehman bonds the day it filed for bankruptcy, paying as little as US$0.75 on the dollar in late 2008, according to news reports citing US court papers.
Others got in later and the trade became the largest position on some funds’ books, topping 10 percent of their assets.
“It was a big bankruptcy and if you had the patience and did the work, it was a great trade,” one fund executive said.
PwC expects about ￡40 billion (US$63.3 billion) to be returned to LBIE’s creditors, including near ￡23 billion for trust claimants and about ￡16 billion for up to 3,400 unsecured creditors.
Two dividends worth a combined 68.5 percent of claims have already been paid to unsecured creditors and another dividend in November should take the tally toward 100 percent, Lomas said.
LBIE has had about 500 staff working on the wind-down, complemented by 200 PwC staff, all under Lomas in a Canary Wharf tower that is within sight of the former Lehman European headquarters. More than 350 staff are former Lehman employees.
Lomas, 56, who has previously worked on the bankruptcies of MG Rover and the European arm of Enron, said LBIE was likely to keep him busy until he retires in four years.
“It’s 20 times as complex and big as Enron. It’s unparalleled,” he said.
NO VIRUS BLUES: A SEMI Taiwan official said that the virus does not slow down the global semiconductor industry’s investment in manufacturing equipment The production value of the nation’s semiconductor industry is expected to grow 16.7 percent this year from last year, outpacing the global industry’s 3.3 percent growth, industry association SEMI said yesterday. That would help Taiwan safeguard its second spot in the global semiconductor market with a production value of more than NT$3 trillion (US$102.73 billion), SEMI Taiwan president Terry Tsao (曹世綸) told a media briefing in Taipei for the Semicon Taiwan trade show beginning today. The global semiconductor industry’s production value is expected to increase to US$426 billion this year, SEMI said. In terms of semiconductor equipment investment, equipment billings from Taiwanese firms
Intel Corp has received licenses from US authorities to continue supplying certain products to Huawei Technologies Co (華為), a company spokesman said yesterday. Washington has been pushing governments around to world to squeeze out Huawei, saying that the telecom giant would hand data to Beijing for espionage. From Monday last week, new curbs have barred US companies from supplying or servicing Huawei. This week, the state-backed China Securities Journal reported that Intel had received permission to supply Huawei. China’s Semiconductor Manufacturing International Corp (SMIC, 中芯國際), which uses US-origin equipment to make chips for Huawei and other companies, last week confirmed that it had sought
Swancor Renewable Energy Co (上緯新能源) yesterday announced plans for a 4.4 gigawatt (GW) offshore wind project off Miaoli County as part of its commitment toward Taiwan’s energy transformation, the company said in a statement. The “Formosa 4” project includes three deep-water wind farms 18km to 20km off the coast, Swancor Renewable CEO Lucas Lin (林雍堯) said, adding that planning for the project began last year. A proposal for Formosa 4 was this week submitted to the Environmental Protection Agency (EPA), the company said. Swancor Renewable jointly developed the Formosa 1 project, a 128 megawatt (MW) wind farm about 4km off Miaoli and the
INVEST IN TAIWAN: A metal components casting firm and the world’s largest maker of aluminum bicycle rims also obtained approvals to join the program Solar Applied Materials Technology Co (SOLAR, 光洋應用材料), a part of Taiwan Semiconductor Manufacturing Co’s (TSMC, 台積電) “green supply chain,” has pledged to invest NT$1 billion (US$34.1 million) to build a new plant at the Tainan Technology Industrial Park (台南科技工業區), the Ministry of Economic Affairs said yesterday. SOLAR has been collaborating with TSMC to extract precious metals from waste and reuse them as “sputtering target” material in high-end semiconductor manufacturing, a TSMC press release issued in May said. Established in 1978, SOLAR also offers key materials and integrated services to customers in the optoelectronics, information and communications technology, petrochemicals and consumer electronics industries,