Kyle Bass: Small Lehman Creditors Are Getting Freight Trained!

Source: CNBC
Lehman Brothers senior creditors are battling over $55-60 billion worth of recoveries in the Lehman estate. Kyle Bass of Hayman Capital (who made $500 million betting against subprime mortgages using CDS) thinks elite hedge funds (Paulson & Co. and Baupost) have an unfair advantage in this case because they have a "cozy relationship with the restructuring advisor", and the "small investor is literally getting freight trained in this process"!

Quotes from his CNBC appearance:
($34 billion of Lehman principal protected notes sold to retail investors in family offices) "don't have a collective voice on the creditors committee. When the official creditors committee was put together there wasn't a seat for them. They are one of the largest single claimants"

"What's interesting to me is as we go through the process, you realize that our country is based on this foundation of the rule of law and you invest in a company because there's a capital structure. What's happening here is the capital structure is being redrawn in the bankruptcy by the big funds with the advisors who I think have too close of a relationship."

"So the real issue here is the little guy, the small investor in this case, is literally getting freight trained in the process and they have no voice; and the banks that sold them these bonds are not looking out in their best interest because they don't want to have that difficult conversation with the people they cost a lot of money to."

*Bass said he owns European claims (Lehman Brothers International - Europe)

From Hayman Capital's recent letter to investors:
"These elite hedge funds appear to have a very cozy relationship with the restructuring advisor in this case. They have no doubt worked together in the past and have expectations to work together in the future. We can only speculate as to why they believe they are entitled to bend and possibly break the long established expectation of seniority that comes with purchasing senior bonds.">

If interested, reports Lehman Brothers Holdings Inc. bond trades. LEHM.HEO currently trades at 25, +31% from February 3, 2010. It traded at 10.87 on January 30, 2009.

Lehman Brothers Holdings Inc. Note (source:

Related articles:

Lehman creditors oppose any claims renegotiation (MarketWatch 5/16/2011)

*Paulson Plays the Lehman Bust. Paulson & Co. could make $350 to $756 million on $7 billion worth of Lehman bonds purchased at an average price of 13 cents on the Dollar  (Wall Street Journal)

*How much money Paulson has made in Lehman (LBHI) *breaks out Lehman creditor classes (Distressed Debt Investing)

Battle Over Lehman Disclosures (WSJ)

Paulson Wants Goldman Sachs Group to Detail Lehman Holdings (Bloomberg)

DJ Pimco Paid Hefty Prices For Lehman Debt As Collapse Neared (Morningstar)

More info on the principal protected notes:

Lehman's `100% Principal Protection' Means Pennies for Notes (Bloomberg) <-damn 9/2008

Investor group opposes Lehman plan - re: European creditors (Financial Times) 6/2010

SEC Said to Review Principal-Protected Note Sales (BusinessWeek) 7/2010

Hat tip Business Insider via Value Walk.

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