Hedge Funds are basically useless and ridiculously expensive in many ways...however if you do invest in one this is what they should be doing for you...Some Lehman creditors benefit handsomely from the bankruptcy.

Some Lehman creditors benefit handsomely from the bankruptcy

September 13, 2013, 12:31 PM

AFP/Getty Images

Former headquarters of Lehman Brothers.

If the onslaught of media attention on the five year anniversary of the Lehman Brothers bankruptcy has shown us anything, it’s that pivotal characters and institutions in the financial crisis that followed have been neatly sifted into winners and losers columns.

Some losers: former Lehman CEO Dick Fuld, underwater homeowners, Securities and Exchange Commission efforts to punish Wall Street execs, and a “generation of politicians”.

Some winners: Wells Fargo and its post-crisis savvy, Paul Krugman and his brand of economics, Michael Lewis’s colorful storytelling, and Asian stocks and equities.

Add to that second column some of the figures in the Lehman bankruptcy itself, which continues to roll on years later. There’s the slew of attorneys, accountants, and restructuring experts, who have racked up total fees estimated at between $2 billionand $3 billion.

But those well-paid advisers have managed to extract substantial value out of the Lehman estate, with a fourth distribution coming to creditors on October 3, according to court documents. In all, as much as $80.6 billion could be distributed to the holders of $308.7 billion of allowable claims, according to a Financial Times report.

The amount of allowable claims has been pared down from over $1 trillion during course of the five-year bankruptcy case, increasing the recovery for those deemed allowable. Now, the FT estimates total recovery could hit 26 cents on the dollar, whileBloomberg cites estimates of 22 cents on the dollar.

For many creditors, like the bondholders who bought Lehman’s debt at 100 cents on the dollar, that’s still a substantial loss. But many hedge funds and other distressed-debt investors who snapped up claims on the cheap are poised to profit handsomely.The Wall Street Journal reports Friday that firms like Elliott Management LP and Paulson & Co. have been some of the beneficiaries:

“Paulson, which made a fortune on a well-timed housing-market bet in the early stages of the financial crisis, is up more than $1 billion on its investments in Lehman claims, while Elliott is ahead by more than $700 million, according to the people familiar with the matter.

“After Lehman failed in September 2008, some creditors didn’t want to wait for their money, or take a chance that they wouldn’t get paid at all. Some distressed-investing hedge-fund managers were willing buyers of their claims, deploying teams to study Lehman’s balance sheet to identify potentially valuable assets they could buy at discounts.”

Sunday marks the five-year anniversary since Lehman’s filing. In 2008, the future of the U.S. financial system looked unstable and uncertain. In 2013, at least we know that some Wall Street players have returned to their profit-making ways.

– Ben Eisen

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