San Mateo County Lehman recovery update

The Daily Journal 12/16/10.  San Mateo County is joining 10 other Lehman Brothers creditors like hedge fund Paulson & Co. and the California Public Employees’ Retirement System in proposing an alternative way of distributing the $57.5 billion in assets. Rather than accept Lehman’s plan to the bankruptcy court which apportions creditors varying amounts of pennies on the dollar, an ad hoc group whose members have similar investments filed a rival reorganization plan with the U.S. Bankruptcy Court in New York.

The group is collectively owed nearly $12.5 billion from Lehman’s holding company and entities but would recover much less under Lehman’s plan than its own. “Their plan makes no sense at all,” said Chief Deputy County Counsel John Beiers. “When you look at it, it’s kind of shocking that they’re treating all these creditors differently.” Lehman has several entities under its umbrella and the plan aims to pay investors based on which section it was involved. Opponents say the structure would give larger investors like banks more while leaving others, like San Mateo County, getting less. Lehman’s plan offers unsecured creditors 10.4 cents to 44.2 cents on the dollar. General unsecured creditors would recover 14.7 cents on the dollar while creditors of the derivatives and commercial paper units would recover 21.9 percent to 44.2 cents on the dollar.


San Mateo County’s expected payout would be 17.4 cents on the dollar, Beiers said. According to Beiers, the issue is definitely financial but also one of principal. “The county considered Lehman to be one business entity when the treasurer invested in it, not a specific subset. We feel we have a compelling argument to the court,” Beiers said.  In comparison to that plan, yesterday’s filing would give all Lehman creditors 24.5 cents on the dollar. Lehman’s right to an exclusive plan expired after 18 months, opening the way for alternatives. Lehman may also file a modified plan in the future with tweaked figures.


San Mateo County lost $155 million from its investment pool when the Wall Street titan failed more than two years ago, sparking the largest bankruptcy in U.S. history and numerous failed attempts to make financially wounded jurisdictions whole. The county investment pool includes 1,050 different accounts from cities, school districts and special agencies. Of that, $20 million came from school districts who have since sued San Mateo County, more than $1 million from Peninsula cities and $25 million from the San Mateo County Transportation Authority.  San Mateo County went one step beyond bankruptcy court to recoup its losses, suing the company’s individual executives and accountants, too. While those effort are ongoing, according to county spokesman Marshall Wilson, they have yet to come to fruition. Also stalled are pushes by congressional leaders like U.S. Reps. Jackie Speier, D-San Mateo, and Anna Eshoo, D-Palo Alto, to treat the affected counties, cities and agencies like banking creditors who’ve since been helped by the federal government. Likewise, the rival distribution plan’s proponents say Lehman’s own plan treats the large banks better than the smaller victims and could cause more litigation as the different entities fight over the assets. “It’s a double insult that the large banks who definitely stand to benefit from the plan have already benefited from taxpayers,” Beiers said, referring to past bailouts. There is no guarantee the bankruptcy court will accept either plan and Beiers said there is hope that the recovery could be even higher than the suggested 24.5 cents per dollar.Lehman has told the court it hopes for the bankruptcy to be completed sometime in 2011 but now everyone involved must just wait, Beiers said.


Posted by Kathy Meeh