A phalanx of hedge funds led by Paulson & Co. is crying foul over Lehman Brothers Holdings’ bankruptcy plan, saying that it treats some creditors unfairly and will lead to years of litigation.
The dozen creditors, which include the California Public Employees’ Retirement System, Legg Mason’s Western Asset Management division, and San Mateo County, Calif., called the Chapter 11 plan “seriously flawed,” warning that it “establishes a ‘pot’ of assets for distribution and pits creditors of various estates against each other,” virtually guaranteeing a steady flow of unnecessary lawsuits and delay the recovery of assets.
Under Lehman’s proposal, some unsecured creditors would get as much as 44.2 cents on the dollar, with general unsecured creditors getting 14.7 cents and some getting just 10.4 cents. The plan favors creditors of Lehman’s derivates and commercial paper units.
The hedge fund creditors want those figures made closer to even.
The Paulson-CalPERS group filed their objections in Manhattan bankruptcy court yesterday. The group also includes hedge funds Canyon Capital Advisors, Fir Tree Partners, Fortress Investment Group, Gruss Asset Management, King Street Capital Management, Owl Creek Asset Management and Taconic Capital Advisors. All told, the twelve creditors claim to hold $15.5 billion in Lehman debt.