Paul Singer’s Elliott Management is winning over others in buying any Lehman claims that are still sold on the market. We earlier reported that Elliott Management was cleared by the U.S. court to buy claims worth $2 billion against Lehman Brothers Holdings Inc Plan Trust (OTCMKTS:LEHMQ)’s U.K. business. In the latest development, Patrick Fitzgerald for DowJones reports that the activist hedge fund has now beaten all the rival bidders in owning claims worth $3 billion or GBP 1.8 billion, including interest.
Elliott Management and King Street transaction
Elliott Management along with King Street Capital Management will be paying $762 million (GBP 650 million) as a down payment, making the duo the holder of the much-sought-after claims. The terms of the agreement also include the right to “future contingent sums” after the initial payment of $762 million. Other hedge funds including the likes of Baupost Group and Paulson & Co have argued that the bidding process was held in secrecy, which did not allow for fair competition. As it happens, the Manhattan judge sided with Elliott and King Street, and ruled that the transaction was transparent and the two hedge funds had won the claims fair and square.
CarVal Investors LLC, one of the rival hedge funds, said it will pay GBP 900 million for the same claims, nearly 40% more than what Elliott is paying. However none of this found favor in the courtroom, where the other hedge funds alleged that they have doubts about the way the deal was brokered.
Elliott Management has recently raised $3.3 billion in new capital, and the growth comes at a time when other hedge funds are either closing to new investments or returning capital to moderate their size. Elliott International Ltd. is up 9% for the year until end of Q3, and the fund manages $15 billion.
Lehman claims, especially those against Lehman Brothers International (Europe), or LBIE, the U.K arm, have been trading like hotcakes. These days they are valued close to 130 cents on the dollar, which means that there is strong expectation of a solid payout at the end.
Liquidations from the bankrupt lender continue to pour out and hedge funds have been scrambling to get their hands on whatever is left. Seth Klarman’s Baupost Group, one of the leading hedge funds with large exposure to Lehman along with Elliott Management and Paulson & Co, has been getting richer from distributions to the Lehman creditors. The fund has generated more than a couple billion dollars since Lehman Brothers Holdings Inc Plan Trust (OTCMKTS:LEHMQ) exited bankruptcy protection in March 2012. In the second quarter letter, the fund noted:
“We anticipate that many of our investments in the Lehman estates, will receive large distributions of cash in the third and fourth quarters. Some of the Lehman entities will be making their first distributions, and we expect they will be substantial in size.”
While Baupost may not have been successful in beating out Elliott in this lucrative deal, there is still plenty coming its way in payments. The U.K. arm is going to distribute roughly $64 billion to its creditors of which $40 billion has already rolled out. Lehman Brothers New York has paid about $50 billion in liquidations and is expected to pay up another $30 billion in the coming years.