‘Lull before storm’ as debt overhang threatens market

Lehman Brothers UK Staff Canary Wharf London S...

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CORPORATE FINANCE: US$1 billion of Lehman debt traded on IlliquiDX platform over past eighteen months

By ECM Plus staff

ECM Plus +++ Trading volume of over US$1 billion in Lehman creditor claims have been made since the beginning of 2010 in more than 120 separate transactions, according to London-based platform for securities IlliquidX.

The company, an independent firm in the asset class in Europe, said that in 2011, it had a 1.3 percent+ global market share in Lehman claims trading, based on US$9 billion traded globally, representing circa 3,000 claims, between January and April 2011.

Bankruptcy claims-trading enables creditors with claims against bankrupt companies to sell their interests to investors before the conclusion of a bankruptcy case.

IlliquidX said that while it was now a mature market in the United States of America, it was still a growing market in Europe, and the Lehman Brothers bankruptcy, as well as the Icelandic banks bailout, had helped the niche market develop in Europe.

According to IlliquidX, the appetite for a market in illiquid assets is growing rapidly, with private equity houses and hedge funds raising significant sums from their clients to invest in the distressed market. Apparently, they are now ‘meaningful providers of liquidity’ in a market where traditional market makers and proprietary desks of some investment banks have disappeared.

IlliquidX said it was now playing ‘a pivotal and unbiased role’ by stepping in to fill the void. Celestino Amore, CEO for IlliquidX said: “The more these assets are traded and thereby are transferred to new investors, the more pressure is taken out of the market providing liquidity to financial markets and enabling the economy to recover faster. However, of the US$600 billionn of Lehman’s debt, just short of 10% has been transferred from holders to investors so far, and besides this there is a lot more distressed debt hitting the market, such as Irish sovereign debt – more than 450 billion euros owed to the Euro system – US$270 billion of Greek sovereign debt and Madoff claims of some US$6.8 billion, etc. The market still has an overhang of masses of debt and claims, and anyone who believes that the current problems have gone away is simply in denial. It feels like the lull before the storm.”

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