Lehman Seeks Appeal of Ruling That Boosts Deutsche Bank’s Payout

(Bloomberg) -- Lehman Brothers Holdings Inc., parent of the firm that went bankrupt during the 2008 financial crisis, is seeking to reverse a U.K. ruling that would cut recoveries for its creditors. 

LBHI and another unit of the lender are asking the U.K.’s highest court to review an October decision that pushed the parent company further back in line to be repaid as part of U.K.-based insolvency proceedings. There are still hundreds of millions of dollars at stake. 

The lower court ruled that subordinated debt known as “enhanced capital advantaged preferred securities” should be paid ahead of other low-ranking creditors including LBHI, which could give the ECAPS holders a windfall of 500 million pounds, or about $665 million. Deutsche Bank AG has the largest stake, and other investors include Barclays Plc, Farallon Capital Management and CarVal Investors. 

LBHI argued the court erred in some of its decision making, and said the judgment could have a large effect on London’s subordinated debt market, according to court papers filed Thursday.  

ECAPS issued in the years before Lehman’s demise shored up the investment bank’s regulatory capital. After New York-based Lehman went bankrupt, the securities traded for pennies on the dollar, and some were even given away for free. However, the October court decision left open the possibility that holders could be paid full face value. 

There probably won’t be enough money to fully repay both LBHI and ECAPS holders, making the repayment order crucial for investors. 

LBHI’s lawyers “have failed to identify any arguable point of law of general public importance that merits consideration by the Supreme Court,” Deutsche Bank argued in an objection to the appeal request. “Accordingly, permission to appeal should be refused.”

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