Davis Polk, together with Linklaters and Morgan Lewis, is advising the joint administrators of Lehman Brothers International (Europe) (“LBIE”) in connection with the settlement in principle of $38 billion in claims between LBIE and Lehman Brothers Inc (“LBI”). The settlement represents a critical milestone in the Lehman Brothers administration and brings the parties closer to unlocking substantial distributions for creditors who hold tens of billions of dollars in claims.

LBIE, the Lehman Brothers U.K. broker dealer in administration, filed approximately $30 billion in claims against LBI, the Lehman Brothers U.S. broker dealer, in a liquidation under the Securities Investor Protection Act (SIPA) administered by SIPA Trustee James W. Giddens. LBIE’s claims were in both LBIE’s capacity as representative to its clients (Omnibus Claim) and for LBIE’s proprietary account (House Claim). Upon execution of definitive documentation, receipt of requisite court approvals and satisfaction of other conditions, LBIE’s Omnibus Claim will be allowed as a SIPA customer claim in an amount of approximately $7.5 billion (valued as of September 19, 2008) in cash and securities and augmented by approximately $600 million in post-filing income. LBIE’s House Claim will be allowed as a SIPA customer claim of $500 million and a general estate claim of $4 billion. LBI’s unsecured claim against LBIE of $13.8 billion will be eliminated, and LBI’s U.K. client money claim against LBIE will be assigned to LBIE’s nominee. The deal includes a binding agreement as to maximum recoveries into the entities’ estates to allow for continued planning of distributions in their respective estates. If the parties reach agreement with respect to final documentation by year end, the deal will be submitted for court approval (in both the U.S. and the U.K.) in the first quarter of 2013.

The Davis Polk team is led by bankruptcy partner Timothy Graulich, litigation partner Elliot Moskowitz, credit counsel Erika D. White, litigation counsel Michael J. Russano and bankruptcy counsel James M. Millerman. All members of the Davis Polk team are based in the New York office.

Hughes Hubbard & Reed LLP represents the SIPA Trustee of LBI.

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