Lehman to settle derivatives dispute with Australian firm

New York: Bankrupt Lehman Brothers Holdings Inc. reached a settlement in a derivatives dispute with billions of dollars at stake that divided courts in the US and the UK.

The legal fight centred on which entity should be paid first from collateral under two transactions: Lehman or the holder of notes issued by a special-purpose vehicle created by Lehman known as Saphir.

Lehman Brothers Special Financing (LBSF) reached a settlement with the Australian noteholder, Perpetual Trustee Co. Ltd., according to a court document dated November 17. The filing, which Lehman said was made in federal court in Manhattan, couldn't be confirmed in court records. Kimberly Macleod, a Lehman spokeswoman, declined to comment on the terms of the accord.

Statement

"After nearly one-and-a-half years of litigation in the bankruptcy court and English courts as well as many months of settlement negotiations during this period, LBSF has reached a settlement in principle with Perpetual," Lehman said in the filing.

US Bankruptcy Judge James Peck ruled in fav-our of Lehman in January. Terms of the deal that would reverse Lehman's right to take priority because of its bankruptcy filing are unenforceable, he said. Courts in the UK ruled against Lehman.

US District Judge Colleen McMahon, in a September 21 decision allowing an appeal, said Peck's ruling "is of obvious and critical importance" to Lehman's bankruptcy because it could allow Lehman Brothers Special Financing Inc. to recover billions of dollars from various other structured-finance deals that would otherwise go to noteholders. The judge wrote that Lehman has used Peck's decision as "leverage" in settlement negotiations concerning billion of dollars worth of similar transactions.

Lehman is seeking to put the appeal on hold for 90 days to complete the settlement.