Citigroup has agreed to pay Enron Corp. creditors $1.66 billion as the final part of a settlement of a lawsuit over several banks’ responsibility in the energy trading firm’s downfall. In addition to the payment, Citi has agreed to waive and release additional claims. Enron Creditors Recovery Corp., Enron’s successor corporation, agreed to the settlement which is alleged to represent a huge step toward the final settlement of litigation Enron brought against 11 banks, accusing them of conspiring with former Enron officials to manipulate the energy company’s finances. The banks allegedly helped set up structured finance transactions with Enron that buried the company in debt, forcing it into bankruptcy.
Interestingly, Enron was seeking $18 billion in damages from Citigroup and wanted to recover an additional $3 billion in prebankruptcy payments made to Citigroup. The settlement calls for Citigroup paying $1.66 billion, with indemnification claims and an additional $249.4 million of claims Citigroup made against Enron being waived. The deal will allow the release of an additional $1.7 billion of cash held in a disputed claims reserve. Both payments will be part of a special distribution to creditors after the settlement gets U.S. bankruptcy-court approval. The funds won’t be part of the creditor distribution on April 1st, estimated at more than $1 billion.
Enron will allow claims of parties holding some $2.4 billion in Enron credit-linked notes to proceed. To reduce its exposure to the company, Citigroup approached major institutional investors, including insurance companies and mutual funds, to invest in a series of notes. Those holders will receive $2.1 billion plus interest, gains and dividends. According to Citigroup, separate litigation with the noteholders has been settled. It says reserves will cover all of the settlements.
Source: Insurance Journal and Wall Street Journal
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