State-run Power Sector Assets and Liabilities Management Corp. (PSALM) has tapped international law firm Pinsent Masons as its legal counsel for the filing of its $3.4-million claim against Lehman Brothers Special Financing Inc.
In a statement, PSALM president and CEO Emmanuel R. Ledesma Jr. said the law firm was issued a notice of award on January 31, following a successful negotiated bidding.
There were originally six interested parties that submitted their proposals. Two bidders were disqualified due to late submissions while one bidder failed to meet the technical qualifications.
Among those that passed both the technical and financial requirements, Pinsent Masons submitted the lowest financial bid of P18.63 million. This was further lowered to P18.33 million after further negotiations.
Ledesma earlier explained that the $3.4 million it wanted from Lehman Brothers represented the cost of replacement fees and other expenses from the hedging transactions it entered into in 2007.
To recall, Ledesma had said that the transaction that PSALM entered into with Lehman Brothers was not an investment but a hedging transaction, specifically a Principal Only Swap (POS) transaction.
“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,” Ledesma explained.
Ledesma said that when Lehman Brothers filed for bankruptcy four years ago, PSALM had only made two premium payments. As such, PSALM immediately invoked the International Swaps and Derivatives Association Inc. (ISDA) agreement upon learning of the Lehman Brothers bankruptcy, terminated the transaction in November 2008, and replaced it with a new POS with the same terms and conditions.
“The replacement is to ensure the continuous protection of PSALM’s transaction that it initially made with Lehman Brothers,” Ledesma emphasized.
“Hence, to say that PSALM lost in the deal is totally inaccurate. In fact, 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,” he explained.