WASHINGTON - In a potentially precedent-setting case that will determine how municipal and other derivatives are treated in bankruptcy proceedings, a federal bankruptcy court in Manhattan is to hold a hearing tomorrow to determine the fate of some 930,000 municipal and other derivatives contracts involving Lehman Brothers, which made the largest bankruptcy filing in history on Sept. 15.

Lehman Brothers Holdings was the guarantor on the derivatives contracts, which are unregulated, while two subsidiaries, Lehman Brothers Special Financing and Lehman Brothers Derivative Products Inc, were counterparties on them and filed for bankruptcy separately in early October.

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