SINGAPORE: Investors still holding on to the failed Lehman Brothers Minibond notes will be getting some money back.
Receivers of the Minibonds, PricewaterhouseCoopers or PwC, say they have gained control of the underlying collateral through an agreement with parties such as the Lehman Brothers Special Financing, which is the Swap Counterparty.
PwC can now start the process of getting the residual value of the notes (series 1 to 3 and 5 to 10) without going through litigation. It is understood that a big global investment bank will be appointed by this week to liquidate the collateral.
PwC says the amount to be given to the noteholders may vary significantly, depending on the series and tranches held. Payment may be carried out as soon as a few months' time.
PwC says the eventual amount of funds to be given to the noteholders will depend on several factors, including the agreed payments to Lehman Brothers Special Financing.
It has been working with the trustee, HSBC Institutional Trust Services, on this matter.
"This settlement provides certainty to the noteholders that at least some of their initial investment will be recovered. Without the negotiated settlement, the receivers would have to pursue a complex, costly and lengthy litigation process without certainty of recovery," said Mr Dominic Nixon, a partner at PwC and one of the appointed receivers from the audit firm.
This development is expected to affect 7,800 Minibond retail investors who collectively invested some S$373 million in the product.
Lehman Brothers, an American bank, collapsed last September when the sub-prime problem in the US brought the world economy to its knees. The fate of the Lehman Minibond Note Series was then left in limbo.
In a separate statement, the trustee of the defaulted Minibond notes - HSBC Institutional Trust Services - says that after careful consideration, it has accepted the receivers' recommendation to settle with Lehman Brothers Special Financing.
The trustee says noteholders will be receiving formal notification of this development.
The Monetary Authority of Singapore (MAS) has welcomed PwC's announcement. It said the settlement with Lehman Brothers Special Financing does not affect any claims investors are making against the financial institutions (FIs) from which they had bought the notes.
It added that investors who accepted partial settlement offers as part of the dispute resolution process by the FI or the Financial Industry Disputes Resolution Centre would have retained a portion of the notes. They will get to keep the residual value arising from these notes.
MAS said investors who had accepted full settlement offers would have received all of their principal investment amount. Hence these investors will not receive any residual value as they would have transferred the notes to the FI.
MAS said the latest development gives noteholders greater certainty that they will be able to receive the remaining value of their notes. It has also resolved the legal complexities that had prevented the earlier unwinding of the notes.
MAS acknowledged that the HSBC Trustee and PwC receivers have kept it informed during the settlement negotiations.
Welcoming the latest development, David Gerald, president and CEO of Securities Investors Association, Singapore, said: "I think it's a very good development. The noteholders should be happy that now they will actively see some value for the notes that they're holding.
But the lawyer representing the Minibond Investors Action Group said there are now more questions than answers. Mr Conrad Campos said he wants to know the settlement terms and how much investors will get, adding that the group will study the matter further and act accordingly.
On whether such a result can be extended to noteholders of DBS High Notes, Mr Gerald said the two are entirely different. "Lehman Brothers is into insolvency, whereas the issuer in the case of DBS is not.
"So, it's a very different situation, different considerations apply and therefore it's dangerous to draw an analogy here and say since this situation exists, therefore we should also apply this to others. No."
