Creditors of failed investment bank Lehman Brothers (Australia), including about 10 local councils in Western Australia, are likely to get a return of about 80 cents in the dollar on their remaining debts after reaching a settlement with the owner of ratings agency Standard & Poor’s.
IMF Bentham, which was bankrolling the legal claim against US company McGraw-Hill, did not quantify the likely payout.
However, IMF said today it was expecting to generate revenue of $52 million and a pre-tax profit of $47 million on the settlement.
ASX-listed IMF was acting on behalf of 90 local councils, churches and charities that had invested a decade ago in complex financial products distributed by Lehman Brothers (Australia).
The value of these ‘collateralised debt obligations’, which were rated by S&P, collapsed during the GFC.
The GFC also triggered the failure of US-based Lehman Bros.
The action against McGraw-Hill (the owner of Standard & Poor’s) commenced in April 2013, and was led by the City of Swan and Moree Plains Shire Council on behalf of the other investors.
It followed a settlement with Lehman’s liquidator, who proposed a payout to creditors of between 39.9 cents and 49.2 cents.
The claim against McGraw was for the balance of losses.
IMF said today it had reached a conditional settlement.
It said the settlement was one of the variables affecting the timing and amount of distributions from Lehman Brothers (Australia).
IMF added that it reinforced its confidence in the liquidator’s estimated distribution of approximately 80 cents in the dollar.
The City of Swan was facing losses of $4.9 million on its investment, according to evidence in an earlier Federal Court hearing.
Ten WA councils had invested in Lehman Bros products, including the City of Melville, the City of Kwinana, the City of Albany and the East Metropolitan Regional Council.
Some of the CDOs distributed by Lehman matured and there was a full return to the investors.
The ‘Dante’ CDOs were subject to separate legal action in London, resulting in a payment close to 100 cents in the dollar.
That led to payments to Australian investors of about $200 million.
The liquidator of Lehman Brothers (Australia) had originally proposed a payout of just 6 cents in the dollar, before creditors commenced legal action.
The only payout so far was a dividend of 10.99 cents in the dollar paid last year, which resulted in IMF receiving approximately $13 million.
