One of the key determinants of recovery in a Chapter 11 bankruptcy or distressed debt situation are the specific guarantees embedded in an indentures of a corporate bond. Like a guarantee on a home purchase or rental agreement, XYZ party guarantees the liability of ABC person. In corporate finance, these guarantees are carried by the various operating subsidiaries and holding companies of certain issuers. A less than diligent analyst may misread a guarantee into thinking it is more than it is and sometimes may not realize an entity has guaranteed a certain bond.
- Canyon Capital
- Fir Tree
- King Street
- Owl Creek
- Paulson & Co
- Western Asset Management
- The current Lehman Brothers Plan and Disclosure Statement is set up so that creditors of each individual debtor of Lehman (LBSF, LBIE, LBCS, etc) looks to that debtor and its guarantors for value.
- The holding company of Lehman Brothers (LBHI) though, guaranteed most of the operating subsidiaries debt
- That said...from the motion:
"Based on Disclosure Statement analysis of the claims pool, claims of creditors of most, if not all, Debtors and other affiliates of LBHI will be permitted to participate to the full extent of their allowed amount in distributions under the Plan from both their primary obligor, and against LBHI, their purported guarantor."
"Based upon its own analysis of publicly available information, the Ad Hoc Lehman Group believes that resolution of the Inter-Debtor Issues could impact creditor recoveries in the tens of billions of dollars. A substantive consolidation of the Debtors’ U.S. subsidiaries alone would increase recoveries for LBHI creditors by billions, and litigation with respect to other intercompany claims could involve additional billions."