As further discussed in Section 5, after negotiations between Lehman and its creditors, between 20 and 30 percent of payments owed to creditors (including derivatives creditors) of affiliates such as LBSF were reallocated to holding company creditors.
In particular, distributions due to claim holders of derivatives entities such as LBSF, Lehman Commercial Paper Inc., Lehman Brothers Commodity Services, Lehman Brothers OTC Derivatives Inc., and Lehman Brothers Commercial Corporation were reallocated to holders of senior unsecured claims and general unsecured claims against LBHI.
The positive net worth of most of Lehman's derivatives entities at the time of bankruptcy also helped, although the largest entity (LBSF) was borderline insolvent with shareholder equity of only 4 percent of total assets (Panel B of Table 3).
(23) For example, Metavante Corporation refused to make payments on an interest rate swap agreement with LBSF ("Debtors' Disclosure Statement for First Amended Joint Chapter 11 Plan," January 25, 2011).
(33) In the case involving flip clauses, LBSF was a credit default swap counterparty to a special purpose vehicle that issued credit-linked synthetic portfolio notes, with LBHI acting as LBSF's guarantor.
As the case was decided on this basis, the issue of whether the flip clause was triggered by Lehman Brothers Holdings Inc., the parent company of the Lehman Brothers group, or LBSF
's bankruptcy, did not arise.