Deutsche Bank AG (NYSE:DB) is currently embroiled in a legal dispute against Lehman Brothers' US parent company over the ranking of payments from Enhanced Capital Advantaged Preferred Securities (ECAPS) notes, issued by Lehman's UK unit. The confrontation, unfolding in a London court on Tuesday, marks the second litigation concerning these subordinated notes' ranking.
In this ongoing trial, presided over by Judge Robert Hildyard, the contention revolves around whether statutory interest at 8% a year on ECAPS notes should rank higher than Lehman Brothers Holdings Inc's claim. Deutsche Bank, holding a unique type of junior security issued by Lehman's European division, argues that it should be prioritized in receiving the recovered funds before they are directed to the US parent company.
This case follows a previous dispute over crisis-era credit default swaps involving Lehman’s European unit, which culminated in a significant win for Deutsche Bank and others involved.
Investment funds such as King Street Capital Management and Elliott Management Corp have formed the Wentworth Group with Lehman's UK arm. They stand to gain if the court rules in favor of the US parent company's claim over ECAPS interest.
According to an estimate by PriceWaterhouseCoopers in 2021, a surplus of £280 million ($343 million) to £500 million could potentially be available for subordinated creditors from the recovery of Lehman's UK estate. This estimate further underscores the magnitude of the ongoing dispute and its potential ramifications on the parties involved.
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