Law.com – The 8th U.S. Circuit Court of Appeals has become the first circuit in the country to rebuff efforts by a hedge fund to call in a debt based on an alleged technical violation of bond terms in a dispute over an $850 million note issued to United Health Group Inc.

The circuit noted that at least three other federal judges and a New York state court have come down the same way, rejecting the practice used to assert a default claim against United Health in United Health Group Inc. v. Wilmington Trust Co., No. 08-1904 (8th Cir.)

Claims similar to Wilmington Trust’s have cropped up in other cases as an investment strategy derided by attorney Robert Giuffra, as a "shakedown strategy" that takes from shareholders and gives to bondholders. Giuffra of Sullivan & Cromwell in New York represented United Health in the case. "We are pleased with the 8th Circuit’s decision holding that United fully complied with the terms of its indenture, the relevant federal statute and acted in good faith," he said.

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New York (HedgeCo.Net) – Despite valiant efforts to find investors and stay afloat the credit crisis, Lehman Brothers Holdings Inc. is now at the center of the biggest bankruptcy filing in history.

The fourth-largest investment bank filed for Chapter 11 protection in a Manhattan court today, after write downs stemming from the subprime mortgage fall-out that it helped create proved to be too much to take.

Lehman, who was the largest underwriter of mortgage-backed securities, listed over $613 billion in debt, including over $157 billion owed to unsecured creditors and over $155 billion owed to bondholders.

"The uncertainty, particularly among the banks through which the company clears securities trades, ultimately made it impossible for the company to continue to operate its business,” said Chief Financial Officer Ian Lowitt in the filing.

Shares of Lehman were trading as low as 29 cents this morning; a fitting finale after losing 94 percent of its market value this year. Treasury Secretary Henry Paulson and the Federal Reserve had been trying to come up with a deal that would keep Lehman afloat. Paulson made it clear that he did not want to use taxpayer money to bail out Lehman.

While London-based Barclays looked to be interested in investing in Lehman, they pulled out yesterday amidst concerns over the lack of guarantees from the U.S. government to protect against losses on assets. Bank of America then followed suit, withdrawing from talks with Lehman only to acquire Merrill Lynch shortly thereafter.

Lehman was planning on selling a majority stake in their asset-management unit for around $4 billion.  While talks are still in the works, no conclusion has been reached. Speculations that more losses were to come coupled with its liquidity crunch have prevented any sale from taking place as of yet and ultimately led to the demise of the bank.

Lehman now joins Bear Stearns and Merrill Lynch in the group of banks that were "too big to fail,” that couldn’t weather the credit crunch.

Lehman’s assets are listed at $639 billion. They have about 25,000 employees worldwide.

Julie Scuderi
Senior Editor for HedgeCo.Net
Email: julie@hedgeco.net

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