Creditor Update - Proof of Debt submissions as at 31 July 2012 (the Bar Date) and first interim distribution to unsecured creditors - 9 August 2012

Further to our communication of 4 May 2012, the Administrators wish to provide creditors with:

1. an update on the Proofs of Debt submitted by creditors prior to the 31 July 2012 Bar Date; and
2. further information on the anticipated timing of the first interim distribution.

In summary, we explain in this update that:

1. approximately 3,300 Proofs of Debt (with unsecured claims totalling c.£66.2bn) were received by the Administrators prior to the Bar Date, and thus are potentially eligible to participate in the first interim distribution;
2. it is currently anticipated that the first interim dividend will be paid prior to Christmas 2012, in late November/early December; and
3. from a logistical perspective, the last practical date for agreement of claims for inclusion in the first interim distribution (or Small Claims Settlement Offer) will be around 31 October 2012.

Proofs of Debt received by the Bar Date

As previously reported, on 2 May 2012 the court ordered that the last date for proving (the Bar Date) be brought forward to 31 July 2012. Below, we summarise the Proofs of Debt received at that date, as well as the level of offers made and claims agreed under the Consensual Approach:

* Note: A number of creditors have incorporated within their total unsecured claim, contingent claims arising from Client Asset shortfalls. We have not sought to disaggregate these at this stage. However, where claims have been specified as being contingent unsecured claims, they have not been reflected in the above table. In addition, the above table excludes a claim filed by LB Holdings Intermediate 2 Limited in respect of subordinated debt.

Although the level of non-Affiliate claims of c.£17.9bn exceeds the top end of the range previously estimated in our progress report dated 12 April 2012, this includes Proofs of Debt totalling c.£3.8bn that have subsequently been agreed at c.£3.1bn. Reconciliation, valuation and due diligence continues and the Administrators’ next progress report (due by 14 October 2012) will provide an updated Indicative Financial Outcome which takes account of the further progress then made.

As at 31 July 2012, inbound claims from Affiliates totalled c.£48.3bn, significantly exceeding the top end of the previously estimated range. Despite continued, extensive engagement to resolve outstanding issues (including seeking the withdrawal of the significant part of, if not the entirety of, various inbound claims which the Administrators consider have no merit at all), certain very large claims were submitted shortly prior to the Bar Date. The most notable Affiliate claims received were:

• Lehman Brothers Finance SA (Switzerland) – c.£11.2bn (of which £1.8bn is a contingent unsecured claim);
• Lehman Brothers Bankhaus AG – c.£9.2bn;
• Lehman Brothers (Luxembourg) SA – c.£11.8bn (asserted as an expense claim in the Administration and which would, if valid, be paid in priority to unsecured creditor claims);
• Lehman Brothers (Lux) Equity Finance SA – c.£8.9bn; and
• Lehman Brothers Inc. – c.£7.7bn.

It is disappointing that these claims have been submitted with such very high values, which we consider to be wholly unrealistic, but we are of course continuing our efforts to resolve them ahead of the first interim distribution. Until they are withdrawn or materially reduced, the Administrators will need to reserve for them in determining the amount of the first interim dividend.

We have much work to do to agree and admit unsecured claims which have been submitted prior to the Bar Date and as a result it is in the interests of all parties if creditors are responsive to any requests we might make for information to enable claims to be agreed in an efficient and expedient manner.

As previously advised, whilst the Administrators are seeking to agree claims under the Consensual Approach, creditors may chose to reject such an offer and elect to have their claims reviewed in detail on a bilateral basis. Any such bilateral claims agreement process will likely require further evidentiary documentation to be provided by creditors. Consequently, creditors should be aware that the time required to agree claims under this approach will be dependent upon the complexity of a counterparty’s claim, the level of additional documentation that needs to be provided, and the number of creditors that will eventually ask to have their claims dealt with by this process. In many cases, disputed claims will not be capable of being admitted before the first unsecured distribution is made.

First interim distribution

In the Administrators’ progress report dated 12 April 2012, we highlighted our intention to pay a first interim dividend before the end of 2012. This remains the case, with preparations underway to enable a first interim distribution prior to the Christmas period. Unsecured creditors should be aware, however, that to allow sufficient time for inclusion in this dividend payment, creditors will generally need to have their claims agreed and admitted before the end of October 2012.

Any creditor’s claim admitted after this date will likely miss the first interim distribution and will need to wait for a “catch up” dividend in due course. The Administrators will therefore make a prudent reserve for such claims at the time of the first interim distribution.

Owing to continuing uncertainties regarding future recoveries, the true value of Affiliate claims and the level of reserves required for third party claims that are yet to be agreed, the rate of the first interim dividend will not be finally determined until late October 2012.

Pursuant to Rule 2.98 of the Insolvency Rules 1986, all creditors whose claims have been admitted (via an executed Claims Determination Deed or similar agreement) will receive a written notification from the Administrators in November 2012 setting out further information, including: (i) the dividend rate; (ii) the total amount of the dividend being distributed; and (iii) the level of reserves for unsettled claims.

Small Claims Settlement Offer (“SCSO”)

As set out in the 4 May update, unsecured creditors whose agreed claims do not exceed £150,000 have the option to receive a full and final settlement of their claim via a single payment of 90% of their agreed claim amount. To be eligible to participate in the SCSO, creditors whose claims were submitted prior to the Bar Date must, no later than 31 October 2012:

• have their claim agreed and admitted via an executed Claims Determination Deed (or similar agreement);
• accept the Small Claims Settlement Offer (via a separate agreement, if necessary) as full and final settlement of their claim; and
• provide standard settlement instructions (SSIs) for a GBP bank account via LBIE’s Client Information Portal.

It is currently anticipated that payments under the SCSO will be made at the same time as the first interim distribution.

Other matters

Creditors should note that:

• to be eligible to receive the first interim dividend, unsecured creditors with admitted claims must (to the extent they have not already done so) provide their GBP SSIs via LBIE’s Client Information Portal; and
• although the Bar Date has now passed, any unsecured creditor who has yet to submit a Proof of Debt via the LBIE Client Information Portal is encouraged to do so as soon as practicably possible.

Should you have further questions regarding the Small Claims Settlement Offer please email smallclaimsoffer@lbia-eu.com. For all other queries relating to the content of this update please contact your existing LBIE contact or the Communications and Counterparty Management team at unsecuredcreditors@lbia-eu.com.