Bondholders fighting for control of Lehman Brothers Holdings Inc's repayment plan have amended a proposal for the company's restructuring that would provide them a slightly higher recovery.

The bondholder group, led by hedge fund Paulson & Co and the California Public Employees Retirement System, filed the plan late on Wednesday in U.S. Bankruptcy Court in Manhattan.

The updated filing, which would allow 25.4 percent recovery for unsecured creditors, follows an initial proposal in December that called for recoupment of about 24.5 percent.

The new plan accounts for increases in the valuation of Lehman's assets, and would also raise payouts proportionately for other classes of creditors. The updated valuation figures also could ward off potential challenges from opponents who might question whether the numbers are current.

Lehman filed the largest bankruptcy in history in September 2008, listing $639 billion in assets. The failed investment bank estimates creditors will recover about $60 billion of the $322 billion in allowed claims against the company.

Lehman has filed its own plan, while a group of derivatives creditors has filed a third proposal.

Parties face a Friday deadline to submit or amend plan proposals in time for inclusion in a June 28 approval hearing. If approved by Judge James Peck, the plans would be sent to creditors for a vote.

The Paulson group has asserted nearly $20 billion in claims against Lehman entities.

The derivatives group, led by Goldman Sachs Group Inc and Silver Point Capital LP, is backing a competing plan that would boost recoveries for creditors of Lehman's derivatives business and reduce payouts for bondholders.

Lehman touts its own plan as a compromise that would allow bondholders to recover about 21.4 cents on the dollar.

But the Paulson group says Lehman's plan cannot be trusted, arguing its bookkeeping is tainted by questionable accounting practices known as Repo 105 transactions.

Through Repo 105, Lehman classified short-term loans as sales so that it could temporarily take as much as $50 billion off its balance sheet. A court-appointed examiner studying Lehman's descent into bankruptcy concluded last year that the financial firm could have grounds for a lawsuit against its former executives over the transactions.

Any plan ... that purports to accept Lehman's books and records presents significant legal and equitable problems, the Paulson group said in its plan outline filed in court.

Paulson's plan calls for combining all of Lehman's assets into one asset pool, an approach that the Goldman group opposes, saying it has no legal basis.

Because consolidation merges a company's strongest and weakest assets, creditors of weak entities tend to favor it, while claimholders of healthier units tend to oppose it.

The Paulson group declined to comment. A spokesman for Silver Point could not immediately be reached.

The case is In re Lehman Brothers Holdings Inc, U.S. Bankruptcy Court, Southern District of New York, No. 08-13555.

(Editing by Dave Zimmerman)

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