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Lehman Exits Chapter 11, To Pay Creditors


The company whose collapse set off a chain of events that nearly toppled the world financial system is coming out of bankruptcy protection. Three and a half years ago, Lehman Brothers filed for the largest bankruptcy in history, so news that it's coming out of Chapter 11 may come as a surprise to those of us who thought the bank had disappeared entirely.

The bigger surprise may be that Lehman has a plan to start paying back its creditors, starting next month. WNYC's Charlie Herman reports from New York.

CHARLIE HERMAN, BYLINE: There is no plaque that marks where the Great Recession began. But you could argue that one could be placed on a nondescript block between 49th and 50th streets, on 7th Avenue in Manhattan.

STEPHEN LUBBEN: This was ground zero in Sept 15, 2008 - the start of the real, you know, giant snowball of financial collapse.

HERMAN: Stephen Lubben is a law professor at Seton Hall University who specializes in corporate bankruptcy.

LUBBEN: The thought that a huge financial institution would file for Chapter 11, first of all, was just inconceivable at the time - and that it would be out of Chapter 11 three years later is quite remarkable.

HERMAN: When the bank filed for bankruptcy, it didn't just disappear. It began the process of trying to collect as much money as possible to pay off its creditors. Initial claims totaled over $1 trillion. But through the bankruptcy process, that number has been cut to around $370 billion.

That's the result of the efforts of people like Steven Cohn, the bank's treasurer.

STEVEN COHN: I started at Lehman about Wednesday of that fateful week, which would make it about Sept 17th. And I've been here ever since.

HERMAN: Cohn actually works for Alvarez and Marsal, a firm that specializes in restructuring companies in bankruptcy. When he arrived, there wasn't much of a bank left. The more than 100,000 brokerage accounts had been sold to other firms, and thousands of employees had been transferred along with those accounts. Cohn says there were about 20 people left.

COHN: The classic description for the first year is drinking water from a fire hose. There's just so much information coming in, and so much that needs to be dealt with, we had to create an organization.

HERMAN: Lehman had billions in outstanding commercial loans and private equity deals; more than a million derivatives contracts. There was a real estate portfolio that included a Ritz Carlton on Maui, a ski resort in Montana, and an upscale hotel in New York. At one point, there were 700 people on staff, some of them former employees who had been hired back.

COHN: That institutional knowledge was - is unbelievably beneficial, in terms of knowing why we are in certain real estate investments; why we were in certain private equity investments. We were - managed to hire and maintain people who were familiar with them. That's been incredibly valuable.

HERMAN: Because there were doubts that any creditor would ever see a penny from Lehman's meltdown. Now, with the accounts in order, and after a marathon negotiation session to settle claims in June, there's a payoff plan. Lehman expects to distribute the 65 billion in assets it can recover to its creditors.

Cohn says this speed of the deal amazes him.

COHN: The judge used terms like miraculous. We probably don't think in terms of miracles. I mean, when you're in a middle of it and you're working like crazy, you think you should be able to get there. But the fact that it came to fruition - honestly? A little surprising.

HERMAN: What does it add up to? On average, creditors will get about 17, 18 cents for every dollar Lehman owes them. Some will get more, some less.

Law professor Lubben says, consider the alternative.

LUBBEN: It's pretty good. People are suffering losses but, you know, the creditors are getting a fairly decent recovery. You know, if this had just been liquidated, they would have lost 100 percent.

HERMAN: Emerging from bankruptcy does not mean a comeback for Lehman. The mission now is to pay its creditors, and then put itself out of business - this time for good. Once again, Steven Cohn.

COHN: Yes, our job is to work ourselves out of a job.

HERMAN: But that could take years, especially with ongoing lawsuits against other banks. And the price tag for the lawyers and restructuring experts still cleaning up the mess? Nearly $1.6 billion, and counting.

For NPR News, I'm Charlie Herman. Transcript provided by NPR, Copyright NPR.

Charlie Herman