NEW YORK — Deutsche Bank AG says it isn't suffering from "buyer's remorse" on its $2.4 billion in Lehman Brothers Holdings Inc. bankruptcy claims and is accusing Lehman of making a "newfound interpretation" of its own creditor-payback plan that could diminish how much it and others recover.
In a Monday filing with U.S. Bankruptcy Court in Manhattan, Deutsche Bank called Lehman's accusation last week that it has "buyer's remorse" untrue and reiterated that its claims should be worth more than Lehman's plan says.
"Nowhere in their response do the debtors meet their burden of justifying the inferior treatment the plan proposes for the claims," Deutsche Bank said in its filing.
In trades that date back to June 2010, Deutsche Bank bought intercompany claims from Lehman's German affiliate, Lehman Brothers Bankhaus AG. The claims were part of a $6.6 billion settlement, signed in late 2009, between the German unit's insolvency administrator and Lehman over the disputed ownership of a portfolio of loans.
Deutsche Bank sold stakes in the unsecured claims — $1.381 billion against Lehman's holding company and a second $1.016 billion claim against Lehman's commercial paper unit — to a handful of hedge funds specializing in distressed debt.
In court papers last week, Lehman said the German bank and its allies — among them, funds run by Centerbridge Partners, Blackstone Group LP (BX) and Anchorage Capital — are angry over its latest Chapter 11 plan, a proposal the distressed-debt investors say unfairly shortchanges the recovery on their investment.
But Deutsche Bank said in its Monday filing that Lehman is ignoring the terms of the settlement agreement approved by a judge earlier in the case.
"The Motion is not about Deutsche Bank's post-settlement state of mind," the bank said. "It is about the debtors' repudiation of the terms of the settlement agreement in order to satisfy the demands of other creditors."
A Lehman spokeswoman declined to comment.
While neither the bank nor the funds have disclosed what they paid for claims, it's still possible that they will profit from the trade, but the profit would be less than what they think it should be.
Under Lehman's latest Chapter 11 plan, its third, the Bankhaus claims will be treated as intercompany affiliate claims. That means creditors of the commercial-paper unit would recover about 52 cents on the dollar of what they are owed. Holding-company creditors would recover about 15 cents on the dollar.
Deutsche Bank says the claims at issue should be properly characterized as general unsecured claims, which would boost the recoveries to about 56 cents on dollar for the $1.016 billion claim against Lehman's commercial paper unit and nearly 20 cents on the dollar for the $1.381 billion claim against the holding company.
The dispute sheds a light on the sometimes shadowy world of bankruptcy-claims trading, where billions of dollars in claims trade each month as distressed-debt investors buy up claims from creditors on the cheap and then jockey for position relative to Chapter 11 payment priority order.
For instance, more than $2 billion in claims traded hands on the secondary market in Lehman Brothers' Chapter 11 case in August, according to data collected by SecondMarket.
At least one of the hedge funds involved in the deal has alleged Lehman changed the classification of the claims in the new plan to bump up recoveries for bondholders who had been among the most vocal critics of Lehman's earlier plans, in effect robbing Peter to pay Paul. Lehman has denied that critique.
However, a number of former Lehman opponents holding claims of more than $100 billion are backing the new plan. Those former opponents include hedge-fund manager Paulson & Co. and another group led by Goldman Sachs Group Inc. (GS) and distressed-debt investor Silver Point Capital.
Lehman's new plan gives creditors of Lehman's various subsidiaries larger recoveries than they would have received under its original plan and places a cap and a floor on how much they can claim. As part of the settlements, both groups agreed to hold off from pursuing alternative plans.
Ultimately, the fight over the classification of the former Lehman Bankhaus claims will be decided by Judge James Peck, who is overseeing the Chapter 11 case. A hearing on the dispute is set for Wednesday in U.S. Bankruptcy Court in Manhattan.
Lehman's collapse in September 2008 marked the largest U.S. bankruptcy case ever filed. Since then, a team of hundreds of bankruptcy professionals under the direction of Alvarez & Marsal has managed Lehman's assets, which include real-estate holdings, corporate debt and derivatives, for the benefit of creditors.
Lehman estimated earlier this year that it would likely have $322 billion in allowed claims against the estate, with $272 billion from the parent company and about $50 billion from its various subsidiaries. The bank said creditors can expect to recover up to $65 billion. A confirmation hearing on the plan is set for December.
