Our Phoenix readers may be interested to learn that bankruptcy claims trading, the practice of buying and selling creditor's claims against bankrupt companies, saw a significant decrease between July and August.

Reuters reports that the number of bankruptcy claims traded fell from 1,352 in July to 891 in August. The total value of claims traded in August was $2.22 billion, down from $3.55 billion in July. The latter number was, according to claims trading platform SecondMarket, the highest value of bankruptcy claims traded so far this year.

In bankruptcy claims trading, creditors sell their claims against bankruptcy companies to a buyer for cash, and the buyer later collects on the claim in the bankruptcy process, hoping to earn a profit. Oftentimes the buyers are hedge fund managers.

A large reason for the decreased numbers was a decline in activity with respect to the Lehman Brother Holding Inc bankruptcy. Lehman's bankruptcy is considered to be the biggest bankruptcy in U.S. history. Sources said the number of Lehman claims traded in August was 205, valued at $1.3 billion. In July the number was 782, valued at $3.4 billion. Lehman will likely not be repaying creditors until early 2012.

August saw large claims trading with respect to Bear Island Paper Co, Lehman Brothers Inc and CMR Mortgage Fund II LLC. Claims worth over $20,000 were traded against each of these companies. Sources said there was also active trading of claims against Perkins & Marie Callender, Nebraska Book Co, W.R. Grace Co and Nortel Networks Inc.

Source: Reuters, "Bankruptcy claims trading slows in August," Sep 21, 2011.