JPMorgan Agrees To Pay Nearly $700M To Settle Claims With Lehman Brothers

NEW YORK - (Mealey's) JPMorgan Chase Bank NA on Feb. 1 agreed to pay nearly $700 million to bankrupt Lehman Brothers Holdings Inc. (LBHI) that JPMorgan had been previously paid for "purportedly secured claims against LBHI on the basis that, as 'affiliates' of JPMorgan Chase Bank, N.A., their claims were guaranteed by LBHI" under a September 2011 guaranty and secured by collateral posted by LBHI "in connection therewith," according to a motion for approval of settlement filed in New York federal bankruptcy court (In re Lehman Brothers Holdings Inc., et al., No. 08-13555, Chapter 11, S.D. N.Y. Bkcy.; See January 2012, Page 12).

LBHI and the Official Committee of Unsecured Creditors of LBHI moved for approval of settlement in the U.S. Bankruptcy Court for the Southern District of New York.

Under the terms of the settlement, JPMorgan would pay $699.2 million "that had been previously allocated to satisfy the claims."

Reasonable Solution

"The Movants believe that the Settlement Transaction embodied in the Term Sheet is a reasonable solution of the Claim Objection because the overall value to LBHI is approximately 98% of the amount in dispute and will be immediately available for the first distribution to be made to LBHI's creditors under the Chapter 11 Plan.  Entering into the Settlement Transaction will also result in significant benefits to the estate by avoiding the costs, delay and litigation risks associated with having to prosecute the issues raised in the Claim Objection," the movants say.

The movants contend that on Sept. 9, 2008, JPMorgan Bank "allegedly required LBHI to issue a guaranty of all liabilities of any type of LBHI and its subsidiaries to JPMorgan Bank and its affiliates, subsidiaries, successors and assigns.  In total, LBHI posted $8.6 billion of cash and cash equivalents to secure the September Guaranty pursuant to a security agreement."

"On or about September 22, 2009 the Funds filed over $710 million of purportedly secured claims against LBHI on the basis that, as 'affiliates' of JPMorgan Bank, their claims were guaranteed by LBHI under the September Guaranty and secured by the collateral posted by LBHI in connection therewith.  The proofs of claim filed by the Funds  included claims for losses related to, among other things, bonds (including claims related to contractually subordinated debt issued by LBHI), unsettled trades, cancelled trades, derivatives unwinds, futures contracts, corporate actions and prime brokerage exposure," the movants say.

Claim Objection

The movants filed a claim objection on Oct. 26, 2011, seeking a ruling that the funds were not "affiliates" of JPMorgan Bank "and, thus, were not entitled to rely upon the September Agreements as a basis for asserting secured claims against LBHI."

LBHI and its debtors-in-possession are represented by Joseph D. Pizzurro, L.P. Harrison III, Michael J. Moscato, Nancy E. Delaney, Peter J. Behinke and Cindi Eilbott Giglio of Cutis, Mallet-Prevost, Colt & Mosle in New York.

The unsecured creditors are represented by John B. Quinn, Eric Taggart and Matthew Scheck of Quinn Emanuel Urquhart & Sullivan in Los Angeles and Susheel Kirpalani, Andrew J. Rossman and James Tecce of Quinn Emanuel in New York.

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