Trading in Lehman Bankruptcy Claims Set Record in April

Lehman Brothers

As reported by Wall Street Journal’s Katy Burne:

A record number of bankruptcy claims against Lehman Brothers Holdings Inc. traded hands last month as buyers grew more optimistic about how much they could recover on the claims as the failed investment bank is wound down.

April saw 380 claims traded for a combined face value of $1.8 billion, said broker dealer SecondMarket Holdings Inc., which owns a platform that facilitates buying and selling of such claims. Lehman Brothers, once one of the biggest investment banks on Wall Street, went bust in September 2008.

That beat the previous monthly record of 308 claims in July 2010, when large institutions unloaded batches of claims tied to structured notes, SecondMarket said. The claims sold then had a combined face value of $5.6 billion.

Prices have been trending up incrementally,” said Andrew Gottesman, head of bankruptcy claims at SecondMarket. “There is an expectation of a higher return from the bankruptcy estate.”

Around $42 billion of Lehman claims have traded since the firm filed for protection from creditors under Chapter 11 of the federal bankruptcy code, making it by far the most popular bankruptcy case among traders of distressed assets. Lehman claims represented 83% of the dollar amount of all claims transferred in April.

Lehman claims are sold by companies that believe they are owed money by the defaulted bank, and are typically bought by hedge funds and banks that believe the value of those claims will rise between now and when Lehman’s bankruptcy case is closed.

Claims tied to Lehman Brothers Holdings Inc., or LBHI, now sell for around 18 to 21 cents on dollar, up from 12 to 16 cents in November 2009, before which trading was thin, Mr. Gottesman said.

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