The drawn-out process of winding down Lehman Brothers will come a step closer to ending this week as creditors receive another £6bn from administrators of the bank which sparked the global financial crisis.
Creditors are expected to recoup 140p for every pound of debt, including big-name distressed debt hedge funds Elliott Advisers, King Street, Carval and Baupost, according to previous reports.
The payments will take place on Wednesday, following court approval of a scheme of arrangement. The cash came from interest and withholding tax payments.
The £6bn will accompany the £36bn already given out to counterparties of the failed bank’s London arm, Lehman Brothers International Europe, which formerly housed much of the investment bank’s giant trading operations.
The debt traded as low as 20p in the pound in the aftermath of the failure as investors desperately tried to offload it. Yet while Lehman collapsed almost overnight when it ran out of cash in September 2008, its debt has performed far better than expected given the strength of the underlying balance sheet, meaning many creditors have made a big profit on their investments.
Russell Downs, lead administrator and PwC partner, said described the Lehman crash as “one of the defining moments of the financial crisis”.
He said: “This is a significant milestone in an administration which started nearly 10 years ago with insufficient funds to pay the Lehman staff's wages and without access to critical systems to identify the company’s assets and liabilities.”
The administrators kept on as many as 500 of the former Lehman Brothers staff to supervise the wind-down, alongside staff from PwC and law firm Linklaters.
The latest disbursements were delayed by a complex legal dispute between the hedge fund creditors over how to share out the .
Downs said: “The PwC team has remained committed to finding a way to distribute the remaining £8bn of interest as quickly as possible without what is known as the ‘Waterfall’ litigation running to its natural conclusion over several years. The remaining surplus may be distributed once final recoveries are made and reserves for dedicated liabilities and late claims are resolved.”