Lehman investors in Australia and NZ to share in $100m

Glenda Korporaal
From: The Australian
May 17, 2011 12:00AM

MORE than 1000 Australian and New Zealand retail investors who bought Lehman Brothers-backed Mahogany Capital notes will receive $100 million of their $150m in investments in a settlement reached by the Perpetual Trustee Company.

The terms of the deal with Lehman subsidiary Lehman Brothers Special Financing, which was reached in a New York court last November, were kept confidential until now.

The retail investors in the credit-linked notes -- who range from individuals and charities to local councils and self-managed superannuation funds -- are expected to get their money back over the next few weeks.

The settlement follows several years of litigation undertaken by Perpetual, which was trustee for the notes in both the US and Britain. Investors in some $75m worth of credit-linked notes issued by Mahogany Capital notes series 1 will receive up to 85c in the dollar, while investors in Mahogany Notes series 11 will get 69c in the dollar for the $50m investment.

The notes were sold in Australia between 2005 and 2007 by Mahogany Capital, a subsidiary of Grange Securities, which is now a wholly owned subsidiary of Lehman Brothers Holdings.

Mahogany investors have received no payments on the notes since Lehman Brothers filed for bankruptcy in September 2008 in the wake of the global financial crisis. Mahogany Capital was listed on the ASX but suspended more than two years ago.

It was placed into administration in December 2009 and liquidators were appointed in July.

The details of the settlement will be closely watched by a group of 72 local councils, churches and charities in Australia that also invested in another $260m of Lehman-backed notes and are involved in a Federal Court class-action against the liquidator of Lehman Brothers Australia.

Chris Green, group executive of Perpetual Corporate Trust, said the complex matter had been hard fought and highlighted the need for trustees to be "agile and strategic" in assessing whether to take appropriate action on behalf of investors.

"In this matter we were focussed . . . on what was the most appropriate and achievable in terms of delivering the best outcome for Mahogany investors," he said. "Our ability to secure a settlement was important given that it comes at a time when many creditors remain in limbo given conflicting decisions in England and US courts on the issue of noteholder priority."

The Perpetual settlement will also be watched closely by investors in some $10 billion worth of Lehman-backed notes also battling through the courts in Britain and the US for a return of their funds. The six-month confidentiality period saw Perpetual taken to court in March by Stephen Parbery, the liquidator of Lehman Brothers Australia, seeking the details of the deal.