PSALM taps global law firm for case vs Lehman

MANILA, Philippines - The state-run Power Sector Assets and Liabilities Management Corp. (PSALM) has tapped the services of international law firm Pinsent Masons in a bid to recover $3.4 million in claims against the bankrupt Lehman Brothers Special Financing Inc. (LBSF).

The claim amount represents the cost of replacing an original financial agreement that saved the government agency from a potential loss of $200 million.

PSALM president and chief executive officer Emmanuel Ledesma Jr. said in a statement that the selection of Pinsent Masons went through the standard “negotiated bidding” process, wherein six global and domestic law firms bid for the account.

Pinsent Masons’ original bid of P18.63 million ($431,820) was lowered to P18.33 million ($424,840) after further negotiations.

Pinsent Masons is an international law firm that provides a wide range of commercial legal advice and support services in specific market sectors, such as banking, energy, and insurance. The law firm operates in the United Kingdom, the Gulf and the Asia-Pacific region. It has significant experience in hedging and other derivative transactions using International Swaps and Derivatives Association Inc. (ISDA) documentation and has handled various bankruptcy litigation cases in New York.

“Pinsent Masons will provide legal services to facilitate the claims filed by PSALM before the New York bankruptcy court representing the cost of the replacement and other expenses (such as legal fees and damages) as may be allowed under the provisions of the ISDA,” Ledesma said.

PSALM said it did not incur losses from the $200-million Principal-Only-Swap (POS) hedging transaction it entered into with LBSF in 2007.

When LBSF went bankrupt in 2008, PSALM said it was able to invoke the ISDA agreement, thus terminating the POS on Nov. 3 2008, and replaced it with a new POS on the same terms and conditions.

“The replacement ensures the continuous protection of PSALM’s transaction that it initially made with Lehman Brothers,” Ledesma said. “The value of the Lehman swap that was replaced may now be sold in the derivatives market for up to approximately $12.85 million as of November 2011.”

Ledesma explained that the transaction could be likened to an insurance purchase wherein PSALM pays an annual expense premium of 2.687 percent on the notional amount of $100 million for 19 years. In exchange, PSALM, or the government, has the right to buy dollars at P44.788 in 2028 regardless of the foreign exchange rate at that time.

“Counterparties for the POS deal were selected based on a comprehensive selection process under the guidance of the Government Policy Procurement Board, the Department of Finance, and the Bureau of the Treasury,” he added.