Lehman Bankruptcy Can’t Claw Back Payments in Swaps Liquidation

One of the Lehman Bros. bankruptcy estates can’t claw back payments made in swap agreement liquidations triggered by the investment bank’s 2008 bankruptcy, the Second Circuit ruled.

Parties generally can’t form contracts in which filing bankruptcy is considered an event of default. But swap agreements are an exception to that rule, the U.S. Court of Appeals for the Second Circuit said Tuesday.

Lehman affiliate Lehman Brothers Special Financing Inc. (LBSF) marketed and sold notes through special purpose vehicles, called “issuers.” Lehman then used the proceeds to purchase valuable securities that would serve as collateral for the notes, the court said. ...