A year after its historic collapse, Lehman Brothers is causing huge headaches for some of its biggest creditors — namely hedge-fund titan John Paulson.
Paulson, part of an ad-hoc group owed some $12 billion, is fuming about how the failed bank is being unwound. People with little or no experience in such matters are sorting out what’s been called the largest bankruptcy in history, he complains.
Also at issue for Paulson, along with hedge funds King Street Advisors and Elliot Associates, is that what’s left of Lehman — including complex, hard-to-sell assets — loses value by the day.
Meanwhile, the costs are adding up. One member of Lehman’s creditor group, who spoke to The Post, estimates that Alvarez & Marsal, the firm brought on to help restructure Lehman, has run up nearly $20 million a month in fees, or roughly $240 million since hired last September.
Creditors complained about the executive Alvarez & Marsal brought on to help restructure Lehman’s hard-to-parse plate of derivatives. Joe Fogarty’s background, critics groused, consisted of running American Italian Pasta and serving as the CFO of the apparel company that makes Speedo bathing suits — hardly a resume that appears suited to unwind Lehman.
Creditors are said to be pushing for a Lehman official or a specialist in esoteric securities, especially since the restructuring process is expected to be a long one.
“What we’re looking for is someone who understands the assets and is incentivized to maximize [debt-holder] recoveries,” one creditor told The Post. “If I have to choose between [a former Lehman employee] and someone who ran a spaghetti company, I think the choice is clear.”
Alvarez & Marsal did not respond to requests for comment.
Paulson and other creditors have filed several motions with US Bankruptcy Court Judge James Peck, asking for more suitable managers and for more disclosure about how the bankruptcy process is unfolding.
Another big issue for creditors is that Lehman’s current board of directors is the same group of retired corporate officials and septuagenarians that was in place when it went under.
Most of the directors were friendly to former CEO Dick Fuld, but otherwise have no experience valuing complex financial instruments, creditors complain.
Board members include: Sir Christopher Gent, former Vodafone Plc CEO; theater producer Roger Berlind; and a former Telemundo chief.
Creditors also have asked that JPMorgan Chase’s involvement in putting Lehman under in the days leading up to its bankruptcy be investigated.
JPMorgan demanded that Lehman post some $16 billion in cash and securities the Thursday before it ultimately filed for bankruptcy protection. mark.decambre@nypost.com