The hopes of distressed debt investors everywhere were dashed as Judge James Peck rejected most - indeed almost all - of the claims by the Lehman Brothers estate, reports NYT Dealbook's Stephen Lubben.  Lehman had contended that Barclay’s had received an unwarranted windfall when it bought Lehman’s broker-dealer assets at the height of the financial crisis.

Had the case gone the other way, Mr. Lubben writes, these investors would have made a serious profit, as the Lehman estate would have suddenly had several billion in new funds available to pay unsecured creditors.  That now seems unlikely, and the biggest source of new funds has been taken of the table.  Instead, there will be a lot of second-guessing.  Despite some alarmist talk when the lawsuit was brought, the result largely confirms that §363 sales are done deals.

That the professionals at Alvarez & Marsal, and their counsel Jones-Day, brought the suit does not mean it was an error to do so - but a lot of creditors will be tempted to argue that the entire endeavor was a waste.  Fee application time might get messy, but the judge might have telegraphed his opinion by noting that "the trial itself was a showcase of outstanding advocacy uniformly conducted at the highest professional level."

    Reading into the Judge's Opinion.   All in all, Mr. Lubben's initial read on the opinion is that the judge recognized the special nature of the Lehman case.  As he explained:

The court believes that no bank, domestic or foreign, at the height of the financial crisis of 2008, would have considered an acquisition such as this one that was not structured to minimize risks to the buyer as much as possible, and the court is not surprised that Barclays, in pursuing this transformative transaction, was focused on its own objectives and took aggressive steps to protect itself. To do otherwise would not have been rational.

Much like the automotive cases that arose during the financial crisis, Mr. Lubben suspects that few lasting precedents will come from such a unique confluence of events.  He also notes that the judge makes a broader point about the limited power of debtors facing disaster - i.e., there's no reason to expect a bidder in such cases to be gentle.  The debtor seeks the best deal it can get, but that doesn't mean the deal will be one that comes without regrets.   To access this story, go to:   [NYT Dealbook , 2/23]