Judge Erithe A. Smith of the U.S. Bankruptcy Court for the Central District of California in Santa Ana confirmed two plans proposed by Lehman Brothers after the lender and the debtors reached a settlement that resulted in the SunCal affiliates withdrawing their four reorganization plans.

According to William Lobel of Lobel Firm LLP, counsel to Chapter 11 trustee Steven M. Speier, Smith confirmed the plans Tuesday for all but three debtors. Lobel didn't have an exact number for the number of debtors included in those plans. Three debtors didn't win confirmation because of some issues that still need to be worked out, he added.

The plans likely will take effect within the next few months, Lobel said.

Lehman and the SunCal debtors reached the settlement on Monday, the same day that Smith was set to begin a weeklong confirmation trial on the competing plans.

Under the settlement, filed Monday, Oct. 24, SunCal affiliate Palmdale Hills Property LLC withdrew its four reorganization plans involving the real estate development company's various bankrupt affiliates and the properties they own. Most of the affiliates' cases are being jointly administered under Palmdale's case.

Palmdale also withdrew all of its objections against the two competing reorganization plans proposed by Lehman Brothers for the debtors and agreed to support confirmation of the two plans, court papers said.

The settlement would give SunCal affiliate SCC Acquisitions Inc. the option to purchase the Oak Valley Champions Project for $28 million and the Delta Cove Project for $29.5 million. The option to buy the projects would expire in 90 days, court papers said.

Oak Valley is a residential property that would also have two commercial sites, one school and several parks. The project is expected to have 3,417 units. Delta Coves is a 310-acre site on Bethel Island, Calif. The project is expected to consist of 494 waterfront residential lots consisting of condominiums and townhouses, some of which will have private boat docks.

Under the agreement, SunCal Management LLC would receive $3 million to satisfy its claims.

It appears from court documents that the equitable subordination lawsuit would be dismissed through the settlement. The Palmdale debtors sued Lehman over the equitable subordination of their debt on Jan. 6, 2009.

The settlement has been implemented but still needs court approval from Judge James Peck of the U.S. Bankruptcy Court for the Southern District of New York in Manhattan, Lobel said, because Lehman, too, is bankrupt. Peck will consider the settlement approval on Thursday, Oct. 27.

Any opposition to its approval in Lehman's own Chapter 11 case is unlikely, Lobel said.

Lehman's two plans divide the debtors into two groups. Its first plan covers eight debtors, while its second plan covers 11 debtors.

Lehman's third amended plan for 11 debtors -- Palmdale, SunCal Beaumont Heights, SunCal Johannson, SunCal Summit, SunCal Bickford Ranch, Acton Estates, Seven Brothers, Kirby Estates, SunCal Communities, SCC Communities and Tesoro -- proposes to hand the projects over to Lehman in exchange for Lehman's debt.

Lehman affiliates including Lehman Commercial Paper Inc. and Lehman ALI Inc. have previously asserted secured claims of roughly $1.94 billion in the cases.

Under the fourth amended plan for the 11 debtors, filed Oct. 21, administrative claims would be paid in full, as would Lehman's $40 million administrative loans. Priority tax claims would receive quarterly cash payments until Nov. 6, 2013. Other priority claims would be paid in full in cash.

Secured real property tax claims would either be paid in full on the plan's effective date or in quarterly cash payments until Nov. 6, 2013.

Mechanic's claims would be paid in full.

Reliance claimholders would receive a 40% distribution in cash if they elect to receive the Lehman distribution enhancement, which would give them another 10% of their claim if it's under $20 million. If they don't elect that enhancement, they would receive 1% of its claim in cash. They would also receive any residual cash.

General unsecured creditors for certain debtors will receive 5% of their claim if they elect the Lehman distribution enhancement. If that election is not made, they would also receive 1% of its claim in cash. The creditors would also receive a share of any residual cash.

General unsecured creditors for certain debtors would receive 100% of what they are owed in cash.

Holders of bond-backed claims would be repaid the full amount of its claim. According to the plan, many of the claims against the debtors are secured by project bonds issued by Arch Insurance Co. or Bond Safeguard Insurance Co., or its affiliate, Lexon Insurance Co.

Through the settlement with Palmdale, Lehman will acquire the rights and claims against SunCal CEO Bruce Eileff and Kathy Eileff and SCC Acquisitions and release them from bond indemnity claims.

Equity holders will be wiped out.

The second plan, proposed by both Lehman and Chapter 11 trustee Steven M. Speier, which is for eight debtors under the control of Speier, would also give the projects to Lehman in exchange for its claim, and the estate of the former investment banking firm would make payouts to creditors either by tapping cash collateral or new transfers of cash, court papers said.

The plan is for the SunCal Oak Valley, SunCal Heartland, SunCal Northlake, SunCal Marblehead, SunCal PSV, Delta Coves, SunCal Torrance Properties and SunCal Oak Knoll debtors.

Administrative claims would be paid in full, as would Lehman's administrative loans.

Priority tax claims would be paid through quarterly cash payments until Jan. 6, 2014. Secured real property tax claims would either be paid in full on the plan's effective date or in quarterly cash payments until Jan. 6, 2014. Other priority claims would be paid in full in cash.

Mechanic's claims would be paid in full.

Reliance claimholders would receive a 40% distribution in cash if they elect to receive the Lehman distribution enhancement, which would give them another 10% of their claim if it's under $20 million. If they don't elect that enhancement, they would receive 1% of their claim in cash. They would also receive any residual cash.

General unsecured creditors will receive 5% of their claim if they elect the Lehman distribution enhancement. If that election is not made, they would also receive just 1% of their claim in cash.

Equity holders will be wiped out.

Lehman will file fifth amended plans for the two groups of debtors to resolve some technicalities, Lobel said, adding that there won't be any changes made to creditor recoveries.

Residential community developer SunCal Cos. affiliate SunCal Management LLC filed involuntary petitions in November 2008 for nine of the debtors, now controlled by Speier. Those debtors are 50% owned by Lehman affiliates and 50% owned by SunCal affiliates and, in turn, owned nine real estate projects at the time of the petitions.

The remaining 17 debtors, which own 11 projects, are wholly owned by SunCal affiliates and filed voluntary petitions in November 2008.

Palmdale and dozens of affiliates of SunCal have filed for Chapter 11 in the Santa Ana court partly because of Lehman's own Sept. 15, 2008, bankruptcy filing. The SunCal affiliates allege that financial partner Lehman failed to fund ongoing expenses of their real estate projects, resulting in catastrophic losses.

SunCal of Irvine, Calif., formed all the debtors to undertake various residential real estate projects throughout the western U.S.

Counsel to Lehman, Edward Soto and Alfredo Perez of Weil, Gotshal & Manges LLP and Richard Pachulski, Dean Ziehl and Robert Orgel of Pachulski Stang Ziehl & Jones LLP didn't return calls for comment.

Debtor counsel to Palmdale and the voluntary debtors Paul Couchot of Winthrop Couchot PC also didn't return calls for comment.

A Lehman spokesman could not be reached for comment.

Counsel to the official committee of unsecured creditors, Alan J. Friedman of Irell & Manella LLP, also could not be reached for comment.

Mike Neue of Lobel Firm is also counsel to Speier.