Hedge Funds Get Fat on Lehman's Remains

Almost six years after Lehman Brothers Holdings filed for the largest bankruptcy in history and triggered a global market meltdown, hedge funds are still feeding on its remains. A few firms that waded into the morass following the financial crisis and have spent years analyzing the bankruptcy—including Paulson & Co., King Street Capital Management, Värde Partners, Halcyon Asset Management, and Solus Alternative Asset Management—have made billions of dollars trading in Lehman’s debt. And as they collect on claims or sell them, investors are buying ones that come on the market.

Founded as a cotton brokerage in Alabama in 1850, Lehman failed after taking on too much debt and making risky real estate investments, according to the bankruptcy examiner’s report. It filed for Chapter 11 in September 2008, listing debt of $613 billion. A trustee was appointed to sort out the company’s affairs, including collecting all the money it was owed, determining how to distribute it, and deciding whether and when to sell remaining assets. The claims against Lehman included rent due on office space, short- and long-term loans, and money owed on investments such as derivatives contracts.