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Journal Article
The failure resolution of Lehman Brothers
This study examines the resolution of Lehman Brothers Holdings Inc. in the U.S. Bankruptcy Court in order to clarify the sources of complexity in its resolution and to inform the debate on appropriate resolution mechanisms for financial institutions. The authors focus on the settlement of Lehman?s creditor and counterparty claims, especially those relating to over-the-counter (OTC) derivatives, where much of the complexity of Lehman?s bankruptcy resolution was rooted. They find that creditors? recovery rate was 28 percent, below historical averages for firms comparable to Lehman. Losses were ...
Discussion Paper
Creditor Recovery in Lehman’s Bankruptcy
Expectations of creditor recovery were low when the Lehman Brothers bankruptcy process started. On the day the firm filed for bankruptcy in September 2008, the average price of Lehman’s senior bonds implied a recovery rate of about 30 percent for senior creditors. A month later the bond price was implying a recovery rate of 9 percent, consistent with results from Lehman’s CDS auction. Two and a half years later, Lehman’s estate estimated that the recovery rate for holding company creditors would be just 16 percent. So, ten years after the filing, how much did creditors actually recover?
Discussion Paper
Lehman's Bankruptcy Expenses
In bankruptcy, firms incur expenses for services provided by lawyers, accountants, and other professionals. Such expenses can be quite high, especially for complex resolutions. These direct costs of bankruptcy proceedings reduce a firm’s value below its fundamental level, thus constituting a “deadweight loss.” Bankruptcy also carries indirect costs, such as the loss in value of assets trapped in bankruptcy—a subject discussed in our previous post. In this post, we provide the first comprehensive estimates of the direct costs of resolving Lehman Brothers’ holding company (LBHI) and ...
Journal Article
Chapter 11 for Countries?
Sovereign default risk is rising, yet the system for dealing with it remains flawed. Satyajit Chatterjee explains why it might be time to revive a debt restructuring proposal the international community rejected in 2003.