In a blow to the Lehman Chapter 11 estates, the United States Bankruptcy Court for the Southern District of New York held on September 16, 2015 that Intel Corporation’s Loss calculation resulting from a failed transaction under an ISDA Master Agreement was appropriate.  The decision is significant both because of the dearth of judicial interpretation of the ISDA mechanics regarding the calculation of early termination amounts, and because it affirms the general market understanding that a non defaulting party has broad discretion in calculating “Loss,” so long as its calculation is reasonable and made in good faith. It also suggests that, in considering Lehman’s valuation disputes with non settling counterparties that elected the Loss calculation mechanism, the focus of the bankruptcy court’s inquiry will be on whether the counterparty’s calculation was reasonable, not whether Lehman can prove that it has a superior calculation.

View full memo, The United States Bankruptcy Court for the Southern District of New York Deals Loss to Lehman in Interpreting Loss Under ISDA Master Agreement