Lehman Creditors Face Complex Unwind

In an attempt to resolve some of the issues in the credit default swaps market, traders worked on Sunday to "facilitate an orderly resolution" of trades involving Lehman Brothers, according to a press release issued by several banks Sunday night.

"The current environment is obviously a difficult period for industry participants," said Eraj Shirvani, chairman and managing director of the International Swaps and Derivatives Association (ISDA) in a press release Monday. "ISDA believes, however, that the industry's progress in building a strong foundation for our business will enable it to successfully address current issues. The privately negotiated derivatives business -- including the credit default swaps business -- continues to function well in these times."

By filing for Chapter 11 protection from its creditors, Lehman has a chance to continue to pay employees and conduct business while trying to sell assets. However, it will have to get court approval to do so. Though only the holding company filed for bankruptcy protection, the assets are held by subsidiaries that did not file for bankruptcy protection. That means that Lehman's creditors may not have control over what gets sold and how.

Lehman's largest unsecured creditors include Aozora Bank, a Japanese bank owned by U.S. private equity firm Cerberus Capital Management, and Mizuho Bank, also located in Japan. Aozora owns $463 million of unsecured bonds, while Mizuho owns $289 million.

While Lehman's bankruptcy filing lists Citigroup (C Quote) unit Citibank as its largest creditor with $138 billion in Lehman debt, Citi's role "is administrative in nature and does not represent exposure for Citi to Lehman," according to a statement released by Citigroup to address confusion about the issue.