Lehman, MF Global Dominate October Claims Trading

October was a busy month for bankruptcy claims traders, dominated by the debt in the defunct financial firms of Lehman Brothers and MF Global.

According to a new report from claims-trading market operator SecondMarket, October saw 1,163 trades of $4.4 billion in claims. Lehman Brothers Holdings Inc. and MF Global Inc. accounted for 867 of those trades and $3.79 billion of their dollar value.

MF Global dethroned Lehman as the most traded case for the second consecutive month, racking up 565 trades to Lehman’s 302 trades. However, Lehman remains the winner of the dollar-value rankings, supplying $2.15 billion worth of traded claims versus MF Global’s $1.64 billion in traded claims.

Andrew Gottesman, the head of SecondMarket’s bankruptcy claims market, told Bankruptcy Beat Thursday that the split between the top spots will likely continue. MF Global is a newer case than Lehman and continues to draw investors, while the long-running Lehman saga may be seeing fewer trades but is still resolving very large claims.

“From a volume perspective, it will continue to slow down incrementally,” Gottesman said of the Lehman trades.

MF Global is a no-brainer for distressed-debt traders, he added. He pointed to the success the trustee has had in recovering missing funds; in April, the trustee won court approval to pay out $685 million to commodity futures customers and boost their recovery to about 82 cents on the dollar. There’s also a lack of other cases with high payoff potential.

“There aren’t a lot of cases out there where it makes sense to put your money,” he said. “When you’re investing in claims, you have to have some positions in MF Global. Otherwise investors are going to look at you sideways.”

To encourage trading in MF Global, SecondMarket started holding monthly auctions for claims against the failed brokerage this summer. Since then, the firm said nearly $40 million worth of claims have been listed, and many have received multiple bids.

“The buyer roster grows with every auction,” Gottesman said.

October’s trades more than doubled the $2.14 billion traded in September and marked a 31.7% increase over the $3.34 billion traded in October 2011.

Lehman sought Chapter 11 protection in September 2008 and emerged this past March, though the work to wind down its extensive holdings continues. It has since paid out more than $30 billion to creditors under its $67.5 billion Chapter 11 plan.

MF Global, on the other hand, is a brokerage that’s being wound down under the Securities Investor Protection Act. Its parent, MF Global Holdings Ltd. , sought Chapter 11 protection in October 2011. Last month, SecondMarket reported trades of five claims against MF Global Holdings worth $9.9 million.

Write to jacqueline Palank at [email protected].