Lehman Brothers Holdings Inc. agreed to settle all claims filed by Ambac Assurance Corp.;  the insurance company will drop its $6.1 billion in claims against the bank's bankruptcy estate, and Lehman will drop its claims that Ambac owes it tens of millions under several disputed Ambac-insured derivatives deals.  Ambac had issued financial guarantees on residential mortgage securitizations and credit-default swaps involving Lehman mortgage deals.  The deal has the backing of Lehman's unsecured creditors.  A hearing on the settlement, which requires bankruptcy court approval, is scheduled for 10/20/10.

In a recent "state of the estate" presentation in bankruptcy court, Lehman said it estimates unsecured claims will ultimately range between $250 - $300 billion, down from $860 billion previously forecast.  Lehman's plan to pay back its creditors calls for general unsecured creditors of the main holding company to recover between 10.4% and 14.7% on their claims.  Unsecured creditors of some of the company's subsidiaries, including its derivatives arm, are slated to get more.

After Lehman collapsed in September 2008, the company filed the largest Chapter 11 case in U.S. history. Its bankruptcy consists of 23 different entities each with separate Chapter 11 plans, with creditors of each debtor being paid from the assets of that debtor.  Lehman hopes to have a Chapter 11 plan confirmed by early 2011.   [WSJournal, 10/6]