WINGECARRIBEE Council would recover less than $2million
of its $29 million investment in Collatoralised Debt
Obligations (CDO) if Council accepts an offer from Lehman Brothers administrators PPB to pay 5.6 cents in the dollar.
PPB has offered other Lehman Brothers creditors up to 70 cents in the dollar on their $179.8 million in debts under a deed company arrangement.
But under the proposed deed, councils and other claimants would be seen as “contingent creditors”, unlike creditors with direct debts to the company.
PPB had allocated just $35 million to pay “contingent”
claims totalling more than $625 million.
Under the deed of arrangement, Wingecarribee Council
would receive $1.62 million for its CDO investments, purchased through former financial advisor Grange Securities (later taken over by Lehman Brothers).
Creditors will vote on the proposal at the end of the month, but because councils are not considered full creditors, they cannot block the deed.
Wingecarribee Council general manager Mike Hyde told the Sydney Morning Herald that Council was considering its position on the deed, but said Grange and Lehman Brothers had sold the CDOs in a misleading and deceptive manner.
Mr Hyde said Council would leave no stone unturned in “pursuing all options to try and recoup all of that money or as much of it as we can”.
Council is involved in a Federal Court lawsuit against
Lehman Brothers in an attempt to recover losses on its $59 million investment portfolio.
Mr Hyde said the CDOs were now virtually untradeable, leading them to pursue their losses through other avenues.
“We were put into this position because of the misleading
and deceptive behaviour of Lehman Brothers,” he said.
“If Lehman Brothers hadn’t gone into administration, we
believe we’d be successful in court at recouping all our losses.”
Law firm Piper Alderman has signed up more than 30 councils and investments with losses from CDO investments.
The councils argue that they have provable debts equal of the whole value of their investments because Grange and Lehman sold them toxic products in a misleading and deceptive manner.
Financial experts told the Sydney Morning Herald it was impossible to estimate a return on the CDOs because they are exposed to the whims of a frozen credit market, but they were probably worth more than 5.6
cents in the dollar.
A report to Wingecarribee Council’s meeting today values
the Wingecarribee Council’s CDOs at $2.5million at March 31.
However, PPB administrator Neil Singleton said if Wingecarribee Council were to pursue its claims against Lehman Brothers, the case would take years and would be very expensive and time consuming, with an unknown outcome.
Mr Hyde said that the community would bear the toll if the Council’s losses were written off.
“”Eventually all the losses will translate into dollars we don’t have to spend in the local community,” he said.
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