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This report by the Examiner will change the entire Lehman game IMO.
That is why I have been searching constantly for it since Feb 1.
Also, if you get a chance read the article about AIG and Goldman Sachs. It gives a great insight to how all of these chess games could be manipulated and how I think Lehman got caught in the crosshairs.
The main difference is that when a company files for BK with these swaps , derivatives, etc. they still must be negotiated with according to court decisions.
NO ONE EXPECTED THIS TO BE THE CASE...IMO.
Enjoy the Ride!
Coach T
BlueMountain Sells Debt Fund, Showing ‘Big Opportunity’ Is Over (Excerpt from Boomberg Story)
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=atzRTq71piYw
CLO prices have soared with the number of high-yield companies reneging on debt agreements forecasted to fall from a record 12.9 percent in November to 3.3 percent by the end of this year, according to Moody’s.
As the S&P/LSTA U.S. Leveraged Loan 100 Index gained 52.2 percent last year, the top-ranked CLO pieces have risen to 93 cents on the dollar. The lowest-rated CLO slices have risen to 62 cents from 6 cents, Morgan Stanley data show. BlueMountain, Silverback and Highland say there still are opportunities in debt markets, including loans, convertible bonds and CLOs, though it will take longer to realize gains.
Some CLOs are still cheaper than the loans packaged inside of them, Mahmud said. JPMorgan Chase & Co. high-yield strategists led by Peter Acciavatti said in a Jan. 8 report that loans may return 10 percent to 14 percent this year.
“The easy money is over,” said Nexar Capital’s Attias.
Coach T
Economics focus http://www.economist.com/businessfinance/economicsfocus/displayStory.cfm?story_id=15392186&source=hptextfeature
From BAIL-OUT to BAIL-IN
In a guest article, Paul Calello (pictured left), the head of Credit Suisse’s investment bank, and Wilson Ervin, its former chief risk officer, propose a new process for resolving failing banks
WHAT should policymakers do when faced with the potential failure of a large bank? In 2008 officials had to choose between taxpayer bail-outs (bad) or systemic financial collapse (probably worse). Various ideas to make finance safer, like contingent capital and living wills, are circulating today. But the central issue of bank resolution, perhaps the most vexing aspect of the financial crisis, has not been clearly addressed.
A “bail-in” process for bank resolution is a potentially powerful “third option” that confronts this problem head-on. It would give officials the authority to force banks to recapitalise from within, using private capital, not public money. The concept builds on time-tested procedures that have been used to keep airlines flying and industrial firms going even as their capital structures were being reorganised. It accelerates those procedures to address the unique circumstances of financial firms operating in today’s fast-moving markets. If done correctly it should strengthen market discipline on banks and reduce the potential for systemic risk.
The best way to understand the idea is to look at how a bail-in could have changed the outcome for Lehman Brothers over that fateful weekend in September 2008. Despite intensive efforts to find a better alternative, the bankruptcy of Lehman became unavoidable by the end of the weekend. When the two of us left the New York Federal Reserve on Sunday night, we knew that the financial landscape was in for a seismic shock.
Sunday, bloody Sunday
So it proved. According to market estimates at the time, Lehman’s balance-sheet was under pressure from perhaps $25 billion of unrealised losses on illiquid assets. But bankruptcy expanded that shortfall to roughly $150 billion of shareholder and creditor losses, based on recent market prices. In effect, the company’s bankruptcy acted as a loss amplifier, multiplying the scale of the problem by a factor of six. This escalated the impact elsewhere in the financial system. For example, the Reserve Primary Fund, a large money-market fund, “broke the buck” the next day, leading to severe pressure on other funds. A bail-in during the course of that weekend could have allowed Lehman to continue operating and forestalled much of the investor panic that froze markets and deepened the recession.
How would it have worked? Regulators would be given the legal authority to dictate the terms of a recapitalisation, subject to an agreed framework. The details will vary from case to case, but for Lehman, officials could have proceeded as follows. First, the concerns over valuation could have been addressed by writing assets down by $25 billion, roughly wiping out existing shareholders. Second, to recapitalise the bank, preferred-stock and subordinated-debt investors would have converted their approximately $25 billion of existing holdings in return for 50% of the equity in the new Lehman. Holders of Lehman’s $120 billion of senior unsecured debt would have converted 15% of their positions, and received the other 50% of the new equity.
The remaining 85% of senior unsecured debt would have been unaffected, as would the bank’s secured creditors and its customers and counterparties. The bank’s previous shareholders would have received warrants that would have value only if the new company rebounded. Existing management would have been replaced after a brief transition period.
The equity of this reinforced Lehman would have been $43 billion, roughly double the size of its old capital base. To shore up liquidity and confidence further, a consortium of big banks would have been asked to provide a voluntary, multi-billion-dollar funding facility for Lehman, ranking ahead of existing senior debt. The capital and liquidity ratios of the new Lehman would have been rock-solid. A bail-in like this would have allowed Lehman to open for business on Monday.
Many investors would no doubt complain about the rough justice of a regulator-imposed reorganisation. To preserve value, officials would have to move very, very quickly, leaving little time to fine-tune various claims or observe normal procedures. The new structure would be based on bankruptcy reorganisation principles, allocating value in accordance with investors’ seniority and ensuring that each class of investors would be better off than in liquidation. The process would not be pretty but overall, investors should be relieved by the result. In this example the bail-in would have saved them over $100 billion in aggregate, and everybody—other than short-sellers in Lehman—would have been better off than today.
Why can’t the bankruptcy code do this today? To an insolvency professional, this restructuring looks somewhat like a “prepackaged” bankruptcy, in which creditors agree to a new, less leveraged capital structure negotiated over a period of months. But a lengthy, voluntary process is impractical in the panic surrounding the failure of a very large, complex financial institution. Even the recent “fast-track” reorganisation of CIT, a small-business lender, took 38 days. Lehman had only 48 hours before its liquidity and customer franchise would have been irrevocably damaged. A resolution framework for a large financial organisation must allow a recapitalisation to be implemented much faster than today’s bankruptcy rules allow.
I do like Mondays
Would shareholders and creditors invest in a big bank given the risk of a forced recapitalisation? We think so. After all, investors buy securities that carry the risk of a similar restructuring today. Any extra cost of capital should be quite limited because the losses from a bail-in resolution are so much smaller than the losses at risk in a liquidation. A well-designed bail-in process would also be more predictable for creditors than the wide range of resolution outcomes seen in the crisis.
There are, no doubt, numerous legal and regulatory issues to be overcome for a bail-in to work. Sceptical customers and counterparties would still need to be convinced to deal with the new company. The process would need to be flexible so it could handle a variety of possible situations. But this proposal offers a powerful new way to recapitalise financial institutions using a bank’s own money, rather than that of taxpayers. It would help design resilience and discipline directly into the banking system and prevent individual problems from turning into systemic shocks. Wouldn’t that be a Monday morning worth fighting for?
Suppose anyone might be thinking about this???
Coach T
Economics focus http://www.economist.com/businessfinance/economicsfocus/displayStory.cfm?story_id=15392186&source=hptextfeature
From BAIL-OUT to BAIL-IN
In a guest article, Paul Calello (pictured left), the head of Credit Suisse’s investment bank, and Wilson Ervin, its former chief risk officer, propose a new process for resolving failing banks
WHAT should policymakers do when faced with the potential failure of a large bank? In 2008 officials had to choose between taxpayer bail-outs (bad) or systemic financial collapse (probably worse). Various ideas to make finance safer, like contingent capital and living wills, are circulating today. But the central issue of bank resolution, perhaps the most vexing aspect of the financial crisis, has not been clearly addressed.
A “bail-in” process for bank resolution is a potentially powerful “third option” that confronts this problem head-on. It would give officials the authority to force banks to recapitalise from within, using private capital, not public money. The concept builds on time-tested procedures that have been used to keep airlines flying and industrial firms going even as their capital structures were being reorganised. It accelerates those procedures to address the unique circumstances of financial firms operating in today’s fast-moving markets. If done correctly it should strengthen market discipline on banks and reduce the potential for systemic risk.
The best way to understand the idea is to look at how a bail-in could have changed the outcome for Lehman Brothers over that fateful weekend in September 2008. Despite intensive efforts to find a better alternative, the bankruptcy of Lehman became unavoidable by the end of the weekend. When the two of us left the New York Federal Reserve on Sunday night, we knew that the financial landscape was in for a seismic shock.
Sunday, bloody Sunday
So it proved. According to market estimates at the time, Lehman’s balance-sheet was under pressure from perhaps $25 billion of unrealised losses on illiquid assets. But bankruptcy expanded that shortfall to roughly $150 billion of shareholder and creditor losses, based on recent market prices. In effect, the company’s bankruptcy acted as a loss amplifier, multiplying the scale of the problem by a factor of six. This escalated the impact elsewhere in the financial system. For example, the Reserve Primary Fund, a large money-market fund, “broke the buck” the next day, leading to severe pressure on other funds. A bail-in during the course of that weekend could have allowed Lehman to continue operating and forestalled much of the investor panic that froze markets and deepened the recession.
How would it have worked? Regulators would be given the legal authority to dictate the terms of a recapitalisation, subject to an agreed framework. The details will vary from case to case, but for Lehman, officials could have proceeded as follows. First, the concerns over valuation could have been addressed by writing assets down by $25 billion, roughly wiping out existing shareholders. Second, to recapitalise the bank, preferred-stock and subordinated-debt investors would have converted their approximately $25 billion of existing holdings in return for 50% of the equity in the new Lehman. Holders of Lehman’s $120 billion of senior unsecured debt would have converted 15% of their positions, and received the other 50% of the new equity.
The remaining 85% of senior unsecured debt would have been unaffected, as would the bank’s secured creditors and its customers and counterparties. The bank’s previous shareholders would have received warrants that would have value only if the new company rebounded. Existing management would have been replaced after a brief transition period.
The equity of this reinforced Lehman would have been $43 billion, roughly double the size of its old capital base. To shore up liquidity and confidence further, a consortium of big banks would have been asked to provide a voluntary, multi-billion-dollar funding facility for Lehman, ranking ahead of existing senior debt. The capital and liquidity ratios of the new Lehman would have been rock-solid. A bail-in like this would have allowed Lehman to open for business on Monday.
Many investors would no doubt complain about the rough justice of a regulator-imposed reorganisation. To preserve value, officials would have to move very, very quickly, leaving little time to fine-tune various claims or observe normal procedures. The new structure would be based on bankruptcy reorganisation principles, allocating value in accordance with investors’ seniority and ensuring that each class of investors would be better off than in liquidation. The process would not be pretty but overall, investors should be relieved by the result. In this example the bail-in would have saved them over $100 billion in aggregate, and everybody—other than short-sellers in Lehman—would have been better off than today.
Why can’t the bankruptcy code do this today? To an insolvency professional, this restructuring looks somewhat like a “prepackaged” bankruptcy, in which creditors agree to a new, less leveraged capital structure negotiated over a period of months. But a lengthy, voluntary process is impractical in the panic surrounding the failure of a very large, complex financial institution. Even the recent “fast-track” reorganisation of CIT, a small-business lender, took 38 days. Lehman had only 48 hours before its liquidity and customer franchise would have been irrevocably damaged. A resolution framework for a large financial organisation must allow a recapitalisation to be implemented much faster than today’s bankruptcy rules allow.
I do like Mondays
Would shareholders and creditors invest in a big bank given the risk of a forced recapitalisation? We think so. After all, investors buy securities that carry the risk of a similar restructuring today. Any extra cost of capital should be quite limited because the losses from a bail-in resolution are so much smaller than the losses at risk in a liquidation. A well-designed bail-in process would also be more predictable for creditors than the wide range of resolution outcomes seen in the crisis.
There are, no doubt, numerous legal and regulatory issues to be overcome for a bail-in to work. Sceptical customers and counterparties would still need to be convinced to deal with the new company. The process would need to be flexible so it could handle a variety of possible situations. But this proposal offers a powerful new way to recapitalise financial institutions using a bank’s own money, rather than that of taxpayers. It would help design resilience and discipline directly into the banking system and prevent individual problems from turning into systemic shocks. Wouldn’t that be a Monday morning worth fighting for?
Suppose anyone might be thinking about this???
Coach T
OFFICIAL REPRESENTATIVES AND OTHER PARTICIPATING AFFILIATES PURSUANT TO THE CROSS-BORDER INSOLVENCY PROTOCOL FOR THE LEHMAN BROTHERS GROUP OF COMPANIES REPORT OF ACTIVITIES
through January 15, 2010
From Docket 6914 (excerpt)
Trading Update: An update was provided on the process of settling
intercompany trading balances. Substantial progress has been made
in the area of reconciling trade populations, with 97% of the
derivative population within LBHI’s control facing Affiliates under the control of other Official Representatives now having been reconciled. Further, termination dates have been agreed for 72% of the master agreements governing the derivative trades between entities under LBHI control facing Affiliates under the control of other Official Representatives.
· The Third Protocol Meeting was supplemented by two seminars
organized by LBHI (i) on best practices in regard to derivatives
unwind strategies, for interested Affiliates with street-side derivatives trades, and (ii) for sharing common issues and strategies regarding structured products, for those
Affiliates who issued structured notes, warrants, certificates, etc.
They go on to say they have now settled up to 90% of the trades and expect to be done by Feb. 28, 2010.
The Affiliates and LBHI are starting to play nice!
Coach T
Statement of the Office of the Trustee of Lehman Brothers Inc. (LBI) Trustee’s Complaint against Barclays and Barclays Opposition Memorandum
New York-January 29, 2010 -
The Office of the Trustee for the Liquidation of Lehman Brothers Inc. (LBI), the broker-dealer of Lehman Brothers, made the following statement today following a review of the opposition memorandum filed by Barclays in regard to the Trustee’s lawsuit over disputed assets:
The Trustee rejects Barclays’ claims, which are all based on Barclays’ strained interpretations of the sale agreements, and which amount to nothing less than re-trading the deal that was presented to the Court at the September 19, 2008 Sale Hearing. The Trustee is seeking to enforce the terms of the sale that were approved by the Court at that hearing.
The Trustee agreed to the sale on the understanding that it was consistent with the deal that was presented to the Court and faithful to the fundamental principle of protecting customers and ensuring sufficient assets to satisfy customer claims.
The Trustee rejects Barclays’ argument that a potential shortfall for public customers is not legally relevant and notes that the Trustee, along with SIPC and various regulatory authorities, supported the sale of Lehman to Barclays because, at a time of great financial tumult in the United States markets, the sale was supposed to protect LBI's customers. If Barclays were to prevail, the transfer of these assets would expose public customers to loss of their property to fund a windfall for Barclays.
Media Contact: Kent Jarrell 202-230-1833
Note to Editors:
The liquidation of Lehman Brothers Inc. (LBI), the broker-dealer of Lehman Brothers, is overseen by the LBI Trustee, Hughes Hubbard & Reed partner James Giddens. The Trustee appointed by the United States District Court for the Southern District of New York. On September 19, 2008, the Court entered an order granting the application of the Securities Investor Protection Corporation (SIPC) for issuance of a Protective Decree adjudicating that the customers of LBI are in need of protection afforded by the U.S. Securities Investor Protection Act of 1970 (SIPA). The liquidation has been referred to and is now being administered under the auspices of The Honorable James M. Peck, United States Bankruptcy Court for the Southern District of New York (Case No. 08-01420 (JMP) SIPA).
The information in this statement does not apply to any other Lehman entity, including separate insolvency proceedings involving Lehman Brothers Holding, Inc. (LBHI) and Lehman Brothers International (Europe) (LBIE).
I don't think the US Trustee was too impressed by the Volumes of "Guff" coughed up by the Barclays boys!
Coach T
Statement of the Office of the Trustee of Lehman Brothers Inc. (LBI) Trustee’s Complaint against Barclays and Barclays Opposition Memorandum
New York-January 29, 2010 -
The Office of the Trustee for the Liquidation of Lehman Brothers Inc. (LBI), the broker-dealer of Lehman Brothers, made the following statement today following a review of the opposition memorandum filed by Barclays in regard to the Trustee’s lawsuit over disputed assets:
The Trustee rejects Barclays’ claims, which are all based on Barclays’ strained interpretations of the sale agreements, and which amount to nothing less than re-trading the deal that was presented to the Court at the September 19, 2008 Sale Hearing. The Trustee is seeking to enforce the terms of the sale that were approved by the Court at that hearing.
The Trustee agreed to the sale on the understanding that it was consistent with the deal that was presented to the Court and faithful to the fundamental principle of protecting customers and ensuring sufficient assets to satisfy customer claims.
The Trustee rejects Barclays’ argument that a potential shortfall for public customers is not legally relevant and notes that the Trustee, along with SIPC and various regulatory authorities, supported the sale of Lehman to Barclays because, at a time of great financial tumult in the United States markets, the sale was supposed to protect LBI's customers. If Barclays were to prevail, the transfer of these assets would expose public customers to loss of their property to fund a windfall for Barclays.
Media Contact: Kent Jarrell 202-230-1833
Note to Editors:
The liquidation of Lehman Brothers Inc. (LBI), the broker-dealer of Lehman Brothers, is overseen by the LBI Trustee, Hughes Hubbard & Reed partner James Giddens. The Trustee appointed by the United States District Court for the Southern District of New York. On September 19, 2008, the Court entered an order granting the application of the Securities Investor Protection Corporation (SIPC) for issuance of a Protective Decree adjudicating that the customers of LBI are in need of protection afforded by the U.S. Securities Investor Protection Act of 1970 (SIPA). The liquidation has been referred to and is now being administered under the auspices of The Honorable James M. Peck, United States Bankruptcy Court for the Southern District of New York (Case No. 08-01420 (JMP) SIPA).
The information in this statement does not apply to any other Lehman entity, including separate insolvency proceedings involving Lehman Brothers Holding, Inc. (LBHI) and Lehman Brothers International (Europe) (LBIE).
I don't think the US Trustee was too impressed by the Volumes of "Guff" coughed up by the Barclays boys!
Coach T
Statement of the Office of the Trustee of Lehman Brothers Inc. (LBI) Trustee’s Complaint against Barclays and Barclays Opposition Memorandum
New York-January 29, 2010 -
The Office of the Trustee for the Liquidation of Lehman Brothers Inc. (LBI), the broker-dealer of Lehman Brothers, made the following statement today following a review of the opposition memorandum filed by Barclays in regard to the Trustee’s lawsuit over disputed assets:
The Trustee rejects Barclays’ claims, which are all based on Barclays’ strained interpretations of the sale agreements, and which amount to nothing less than re-trading the deal that was presented to the Court at the September 19, 2008 Sale Hearing. The Trustee is seeking to enforce the terms of the sale that were approved by the Court at that hearing.
The Trustee agreed to the sale on the understanding that it was consistent with the deal that was presented to the Court and faithful to the fundamental principle of protecting customers and ensuring sufficient assets to satisfy customer claims.
The Trustee rejects Barclays’ argument that a potential shortfall for public customers is not legally relevant and notes that the Trustee, along with SIPC and various regulatory authorities, supported the sale of Lehman to Barclays because, at a time of great financial tumult in the United States markets, the sale was supposed to protect LBI's customers. If Barclays were to prevail, the transfer of these assets would expose public customers to loss of their property to fund a windfall for Barclays.
Media Contact: Kent Jarrell 202-230-1833
Note to Editors:
The liquidation of Lehman Brothers Inc. (LBI), the broker-dealer of Lehman Brothers, is overseen by the LBI Trustee, Hughes Hubbard & Reed partner James Giddens. The Trustee appointed by the United States District Court for the Southern District of New York. On September 19, 2008, the Court entered an order granting the application of the Securities Investor Protection Corporation (SIPC) for issuance of a Protective Decree adjudicating that the customers of LBI are in need of protection afforded by the U.S. Securities Investor Protection Act of 1970 (SIPA). The liquidation has been referred to and is now being administered under the auspices of The Honorable James M. Peck, United States Bankruptcy Court for the Southern District of New York (Case No. 08-01420 (JMP) SIPA).
The information in this statement does not apply to any other Lehman entity, including separate insolvency proceedings involving Lehman Brothers Holding, Inc. (LBHI) and Lehman Brothers International (Europe) (LBIE).
I don't think the US Trustee was too impressed by the Volumes of "Guff" coughed up by the Barclays boys!
Coach T
Lehman lobbies, briefly
http://thehill.com/business-a-lobbying/79137-lehman-lobbies-briefly-
By Silla Brush - 02/01/10 07:08 PM ET
Lehman Brothers, the securities broker and investment bank now in bankruptcy, briefly lobbied federal lawmakers in the last two months.
The firm, which collapsed in 2008 and was never bailed out by the federal government, spent nearly $600,000 lobbying in 2008, according to congressional records. Once it collapsed, Lehman stopped lobbying.
Lehman’s downfall helped trigger the broader financial crisis and prompted lawmakers to seek emergency bailout funds for wide swaths of the industry.
Lehman Brothers Holdings Inc., the firm that is now in bankruptcy, spent $50,000 lobbying in December and January, according to a recent registration form.
The law firm Steptoe & Johnson registered to lobby for Lehman Brothers on tax issues, congressional records say. Among the issues listed are net operating loss rules.
A Lehman spokeswoman said lobbyists were notified over the weekend to end the contract.
Coach T
Which posts would you like an explanation on?
Coach T
ADDITIONAL INFO ON COURT DECISION!
Ghost of Lehman hits ABS
http://www.ifre.com/story.asp?storycode=321731
For deals in which Lehman is a swap counterparty, the decision – if not overturned – will provide a huge benefit for Lehman Brothers' creditors.
According to Cleary Gottlieb, Lehman's administrators have estimated that the aggregate value of the termination amounts owed to Lehman under transactions of this sort is more than US $8B, though the administrators may have reached settlements with some counterparties after this estimate was produced.
"If not overturned, this case will have a corresponding adverse effect on the holders of CDO securities and other structured products where a Lehman debtor is the swap counterparty (although it is possible that this result is already fully or partially reflected in the market prices of these securities)," the firm said.
More info at http://www.ifre.com/story.asp?storycode=321731
Coach T
I completely agree...the next 60 days thru the end of March will be action packed!
Examiner...Week of Feb 1
JPM Discovery...Feb 10
MOR for Feb 15 (Balance sheet??)
Reorg Plan...March 31.
99% of all court decisions in Lehman favor! the Perfect Storm!
Coach T
Lehman Brothers bankruptcy court strikes waterfall subordination provisions conditioned on bankruptcy
http://www.lexology.com/library/detail.aspx?g=54efd990-dcd4-42b6-aad6-e8a2714ac68e
USA
January 28 2010
On Jan. 25, 2010, the U.S. Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) held that a trust deed provision reversing a priority of payment waterfall upon the bankruptcy of a credit support provider under a swap agreement is unenforceable under the U.S. Bankruptcy Code (the “Bankruptcy Code”).
Reversals in priority of payment between noteholders and swap agreement counterparties upon the counterparty’s (or its credit support provider’s) bankruptcy are standard in structured finance transactions. The Bankruptcy Court’s decision raises some doubt as to whether these standard provisions will be enforceable in other Chapter 11 cases.
To date, no party has appealed the Bankruptcy Court’s decision. If the decision stands, it could result in significant recoveries by Lehman Brothers Special Financing Inc., as swap counterparty in numerous similar transactions, and, as a result, greater recoveries to its creditors. On the other hand, noteholders in structured financings (such as CDOs) can expect reduced recoveries. The Bankruptcy Court’s decision could also result in downgraded ratings for outstanding CDO-issued notes.
The Dante Transaction
A predecessor to BNY Corporate Trustee Services Limited established a multi-issuer secured obligation program with Dante Finance Public Limited Company in October 2002 (the “Dante Program”).
As part of the Dante Program, Perpetual Trustee Company Limited (“Perpetual”) held credit-linked synthetic portfolio notes (the “Notes”) issued by Saphir Finance Public Limited Company (“Saphir”), a special purpose vehicle created by Lehman Brothers International (Europe). Lehman Brothers Special Financing Inc. (“LBSF”) entered into swap agreements with Saphir (the “Swap Agreements”). Lehman Brothers Holdings Inc. (“LBHI”) served as credit support provider under the Swap Agreements. Both the Notes and the obligations to LBSF under the Swap Agreements were secured by the same collateral (the “Collateral”).
Under the supplemental trust deed, the Swap Agreements, and the agreements underlying the Notes (collectively, the “Transaction Documents”), LBSF’s rights to the Collateral under the Swap Agreements are senior to Perpetual’s rights to the Collateral under the Notes. If an event of default occurs on the part of LBSF under a Swap Agreement, however, the priorities are reversed, giving Perpetual rights to the Collateral senior to those of LBSF. The events of default under the Swap Agreements include the bankruptcy filing of any party, including LBHI, as credit support provider.
The Lehman Brothers Bankruptcy Cases
LBHI commenced a case under Chapter 11 of the Bankruptcy Code on Sept. 15, 2008, and LBSF commenced a Chapter 11 case on Oct. 3, 2008.
Saphir sent notices to LBSF terminating the Swap Agreements on Dec. 1, 2008. The termination notices designated LBSF’s commencement of a bankruptcy case as an event of default under the Swap Agreements and specified Dec. 1, 2008 as the “Early Termination Date” of the Swap Agreements.
The U.K. Litigation
After LBHI and LBSF commenced their bankruptcy cases, Perpetual commenced litigation in the United Kingdom seeking priority of payment over LBSF in accordance with the Transaction Documents. Following a trial, the English High Court of Justice, Chancery Division, issued a judgment in favor of Perpetual, holding, among other things, that Perpetual’s rights to the Collateral became senior to LBSF’s rights to the Collateral on Sept. 15, 2008, when LBHI commenced its bankruptcy case.
The English Court of Appeal, Civil Division, unanimously affirmed the High Court’s judgment on Nov. 6, 2009. The Court of Appeal also determined that LBSF lost no property right or interest as a result of the shift in priority to the Collateral because LBSF’s interest in the Collateral had always been contingent. The Court of Appeal denied LBSF’s motion for leave to appeal its decision to the Supreme Court of England and Wales.
The U.S. Litigation
While the litigation was pending in the U.K., LBSF commenced an action in the Bankruptcy Court seeking a declaratory judgment that (i) the provisions in the Swap Agreements modifying LBSF’s payment priority upon an event of default constitute unenforceable ipso facto clauses, and (ii) any action to enforce the provisions modifying LBSF’s rights to the Collateral as a result of its bankruptcy filing violate the Bankruptcy Code’s automatic stay provision.
The Bankruptcy Court observed that the U.K. courts did not address U.S. bankruptcy law issues in their decisions, and the Bankruptcy Court declined to give preclusive effect to the U.K. judgments.
In granting LBSF’s motion for summary judgment, the Bankruptcy Court held that the provisions modifying priority of payment upon a swap counterparty’s bankruptcy were unenforceable ipso facto clauses and that enforcing those provisions violated the automatic stay.
The Bankruptcy Court’s Reasoning
Ipso Facto Provisions and the Automatic Stay. Under section 541(c)(1)(B) of the Bankruptcy Code, an interest of the debtor in property becomes property of the bankruptcy estate notwithstanding a provision in an agreement “that is conditioned on . . . the commencement of a case under [the Bankruptcy Code]” (emphasis added). Similarly, under section 365(e)(1) of the Bankruptcy Code, an executory contract (i.e., a contract on which performance remains due to some extent on both sides) cannot be terminated or modified after the commencement of a bankruptcy case solely because of a provision in the executory contract that is conditioned on “the commencement of a case under [the Bankruptcy Code]” (emphasis added). Thus, these so-called “ipso facto” provisions are generally held to be unenforceable in bankruptcy cases.
Finding the Swap Agreements to constitute executory contracts, the Bankruptcy Court held that the Transaction Documents require a sale, realization, or enforcement of the Collateral for Perpetual to obtain rights to the Collateral senior to LBSF’s rights and that the “Early Termination Date” occurred after LBSF commenced its bankruptcy case. Indeed, Saphir sent its termination notice on Dec. 1, 2008—almost three months after the LBSF bankruptcy filing. The Bankruptcy Court thus held that LBSF had a valuable property interest in the Transaction Documents at the time it commenced its Chapter 11 case and that LBSF’s property interest is entitled to protection under the Bankruptcy Code as property of LBSF’s estate. As a result, the Bankruptcy Court held that any attempt to enforce a reversal of rights to the Collateral would violate the Bankruptcy Code’s automatic stay, which prohibits, among other things, “any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate.”
The Bankruptcy Court further held that even if the commencement of LBHI’s bankruptcy case on September 15, 2008 were the operative date for subordinating LBSF’s rights to the Collateral, i.e., purporting to deprive LBSF of a property interest in the Transaction Documents before commencing its Chapter 11 case, the ipso facto prohibitions under sections 365(e)(1) and 541(c)(1)(B) of the Bankruptcy Code would bar the efficacy of a change in distribution rights. Noting that those Bankruptcy Code provisions reference the commencement of a case, the Bankruptcy Court held that the language is not limited to the commencement of a case by or against the debtor that is the swap counterparty. Thus, even though LBSF was the counterparty to the Swap Agreements, the commencement of a case by LBHI, as credit support provider, was sufficient to trigger the Bankruptcy Code’s ipso facto protections.
The scope of this holding remains unclear. The Bankruptcy Court stated that the relationship between the debtor that is a counterparty to the swap agreement and the debtor whose case triggers ipso facto protection under the Bankruptcy Code “is best left to a case-by-case determination.” Given the size of the Lehman Brothers corporate family and the unplanned nature of the Lehman Brothers Chapter 11 cases, the Bankruptcy Court determined that the first filing by LBHI is significant “in the context of ipso facto provisions that speak in terms of the commencement of ‘a’ case under [the Bankruptcy Code].” The Bankruptcy Court thus held that “the chapter 11 cases of LBHI and its affiliates is a singular event for purposes of interpreting this ipso facto language.”2
Safe Harbor Provisions. The Bankruptcy Code contains a “safe harbor” provision, permitting a swap counterparty to, among other things, liquidate, terminate, or accelerate one or more swap agreements upon the commencement of a bankruptcy case by the other counterparty.3 The Bankruptcy Court observed that nothing in the Swap Agreements refers to the provisions governing the relative rights of LBSF and Perpetual to the Collateral. The priority of payment provisions thus did not fall within the Bankruptcy Code’s definition of Swap Agreement and accordingly fell outside the Bankruptcy Code’s safe harbor provision.4 The Bankruptcy Court also held that because the Bankruptcy Code’s safe harbor provision deals with liquidation, termination, and acceleration of swap agreements, and not the alteration of rights as they exist, the priority of payment provision is outside the scope of the safe harbor. Subordination Agreements. The Bankruptcy Court also held that while the priority of payment provisions in the Transaction Documents may be construed as subordination agreements enforceable under the Bankruptcy Code,5 the priority scheme is not fixed. The shifting nature of the relative priorities to the Collateral remains unenforceable for the reasons discussed above.
Practical Implications
Under rating agency guidelines, it will be difficult for structured notes to have a rating higher than that of the swap counterparty (or its credit support provider) if the Bankruptcy Court’s view prevails. One possible distinction that might result in a different conclusion under the “safe harbor” in other transactions would be if the reversal of priority of payments was included in the swap agreement itself. Another possibility would be for the “normal” priority of payments to subordinate termination payments to the swap counterparty, with the priority to be reversed (and the swap counterparty to be senior) if termination occurred as a result of a default by the issuer of the structured notes or a termination event for which such issuer is the affected party. Another possibility (which was not discussed by the Bankruptcy Court) would be for the swap agreement to provide for “Automatic Early Termination” of the swap transactions to occur immediately prior to the bankruptcy filing of any party (or credit support provider). If this decision is not reversed on appeal or distinguished from other swap transactions, the way that swap transactions are executed in structured financings will need to change.
A copy of the Bankruptcy Court’s opinion can be accessed here.
http://www.lexology.com/library/detail.aspx?g=54efd990-dcd4-42b6-aad6-e8a2714ac68e
This is the best explantation I have seen yet.
Coach T
I think that the Examiner's report will start the up move.
Furthermore, it is my belief that it will start the separation between the Trusts/Preferred share values and the Common shares.
The ride, IMO is here...Enjoy the Ride!
Coach T
Lehman Sleuth to Report on Probe of Barclays, JPMorgan, Fed
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aiLyS39DCqzo
Barclays Plc and JPMorgan Chase & Co. are among the banks that may be blamed for triggering or improperly benefitting from Lehman Brothers Holdings Inc.’s bankruptcy in a report due this week from an examiner who investigated the firm’s downfall.
Anton Valukas, 66, a criminal law specialist at Chicago- based Jenner & Block LLP, was appointed a year ago to look into the $639 billion bankruptcy of what was once the fourth-largest investment bank and whether Britain’s Barclays gained a windfall when it bought Lehman’s brokerage for $1.54 billion.
If Valukas pins responsibility for Lehman’s bankruptcy, the largest in U.S. history, his findings may help creditors recover damages to satisfy claims, just as Enron Corp.’s creditors did after an examiner’s report.
“It has traditionally been a purpose of examiners to assign blame,” said Lynn LoPucki, a bankruptcy law professor at the University of California, Los Angeles. “Their function is to see why the system malfunctioned, and who was responsible for the malfunctioning.”
Valukas, appointed by the U.S. trustee who oversees bankruptcies, has gathered information from more than 100 witnesses and 10 million documents. These include claims by banks including JPMorgan and Citigroup Inc., according to filings in U.S. Bankruptcy Court in Manhattan.
Enjoy the Ride!
Coach T
Fitch warns of downgrades following Lehman ruling
Monday, February 1, 2010
Fitch says that European structured finance transactions may be affected more by last week’s Lehman Brothers bankruptcy court ruling than US deals. The rating agency said on Friday that it is reviewing all its structured finance ratings and will put on negative watch all deals where US laws could apply, where the ratings on the notes exceed the ratings of the counterparty, and where the counterparty exposure is material. It warns that deals could be downgraded to the rating of the swap counterparty in some cases.
The US court dealing with Lehman Brothers’ bankruptcy ruled last week that the “flip” clauses commonly used to subordinate payments to the counterparty in bankruptcy are not applicable. Fitch says that European deals may feel a greater impact of the ruling, because they make greater use of derivatives to hedge interest rate and foreign exchange risk.
In the US, RMBS and CMBS deals would see little impact, says Fitch, either because they do not make extensive use of hedges or because the swaps are of short duration.
Coach T
29 January, 2010
US court ruling threatens securitisation
The US Bankruptcy Court of the Southern District of New York put a big question mark over the future of much securitisation this week, when it ruled that all-important subordination provisions in a synthetic CDO transaction was invalid under the US Bankruptcy Code.
The case involves a dispute between the bankrupt Lehman Brothers estate and the bondholder trustees in the Lehman-sponsored Dante CDO programme, and it centres on clauses in the deal documentation that subordinate the claim of the credit default swap counterparty (in this case Lehman Brothers Special Financing) on the transaction collateral to those of the bondholders in the event that the counterparty defaults under the terms of the swap agreement.
This clearly happened after Lehman and its subsidiaries filed for bankruptcy from September 2008 onwards, but lawyers acting for the bankrupt estate challenged the validity of the subordination provisions under the Code after the bondholder trustees attempted to enforce their claim on the collateral.
Last year, both the High Court and Court of Appeal in the UK ruled that that the provisions was valid under English law (on which the deal documentation was based), but the New York Court's ruling means the final outcome is now highly uncertain. Under the international principles of comity, the two legal jurisdictions are supposed to work together to "harmonise" their rulings, but it is difficult to see how this will be possible given the adamant stance in the US decision.
US Bankruptcy Judge James Peck ruled that the provisions were "unenforceable and violate the ipso facto provisions of the Bankruptcy Code".
Further on, his judgement stated that "despite the resulting cross-border conflict, the United States has a strong interest in having a US bankruptcy court resolve issues of bankruptcy law, particularly in a circumstance such as this where the provisions of the Bankruptcy Code provide far greater protections than are available under applicable provisions of foreign law".
If the UK courts agree that US bankruptcy law should prevail in this case, the repercussions will be considerable. The rating agencies have already warned that all transactions on which US counterparties play a significant role will be re-rated to the rating of that counterparty - and some reports suggest this could impact around 1,000 outstanding structured-finance transactions.
Securitisation analysts also fear it could jeopardise the future of the entire business. "We believe that if this decision holds upon further appeal (assuming there is one) it could have a negative impact on the future of securitisation and structured credit as it challenges the very foundation of the business," said Atish Kakodkar at the research firm CreditSights.
We will be hearing much more about this IMO...
Coach T
Today was Barclays deadline to respond to the claims by LBHI, LBI, the Trustee and the Creditors Committee on the sale to Barclays.
They appear to be standing by their original repsonse that Lehman still owes Barclays money...surprise.
I have not seen any of the documents yet. I am sure it will be full of smoke and screen.
Coach T
Sec. Geithner just stated in his testimony that on Friday, Sept. 12, 2008, they knew AIG was in trouble.
"On Friday, September 12, 2008, AIG officials informed the Federal Reserve and the Treasury that the company was facing potentially fatal liquidity problems. As we obtained more details about AIG’s financial condition, it became clear they had massive liquidity needs and faced huge losses. Moreover, neither AIG’s management nor any of AIG’s principal supervisors -- including the state insurance commissioners and the OTS -- understood the magnitude of risks AIG had taken or the threat that AIG posed to the entire financial system.
That weekend, we brought together a team of people from the Federal Reserve, the New York State Insurance Department, and other experts to consider how to respond to AIG’s problems. We addressed two basic questions: 1. How would the failure of AIG affect the financial system and the broader economy? 2. What were the options for containing the damage from an AIG failure?
By Sunday night, it became clear that we did not have a willing buyer for Lehman Brothers and that it would have to file for bankruptcy. At that moment, we knew the crisis was about to intensify and spread more broadly. We also knew AIG was highly vulnerable. Nonetheless, even with those new complications, it still seemed inconceivable that the Federal Reserve could or should play any role in preventing AIG’s collapse.
The pressures that had caused the failure of Lehman Brothers and had brought AIG to the edge of collapse were symptoms of a broader adjustment moving swiftly through the financial system. In mid-September 2008, virtually all financial institutions were aggressively shedding risk that had been acquired over the long run-up to the crisis. Confidence was fragile and financial firms were trying to shore up their balance sheets by selling risky assets, reducing exposure to other financial institutions, and hoarding cash.
The impending Lehman bankruptcy added to that destructive cycle. Starting Sunday night, we saw not just an escalating run on banks, but also a broad withdrawal of funds from money market funds. These funds, always thought of as one of the safest investments for Americans, had begun trading at a discount. The run on these funds, in turn, severely disrupted the commercial paper market, which was a vital source of funding for many brick and mortar businesses.
The panic spread. Major institutions such as Washington Mutual and Wachovia experienced debilitating deposit withdrawals, eventually collapsed, and were acquired by competitors. These pressures spilled over to virtually all credit markets. Markets for instruments backed by consumer loans, such as auto loans, credit card receivables, and home- equity lines of credit collapsed, and in response banks tightened standards and sharply curtailed the issuance of new loans."
Now we know what really happened that weekend. The feds knew AIG was going to need help...they patched up a deal with Merrill to B of A and left Lehman in the lurch.
The Examiner and A&M are going to have a field day with this...IMO.
Coach T
If I am seeing this correctly, instead of the counterparty getting made whole...the assets are property of the estate and then settled vs. the counterparty taking off the top and then the leftovers going to the estate.
It should help Lehman...just my opinion. Oh and there are about 1,000 of these.
Coach T
Lehman SPV ruling sparks controversy
This is a huge ruling in Lehman's favor IMO...
http://www.ft.com/cms/s/0/c74e7c5a-0aaf-11df-b35f-00144feabdc0.html?referrer_id=yahoofinance&ft_ref=yahoo1&segid=03058
"The dispute centres on the priority of claims for the Dante SPV. Dante is one of a string of SPVs created to issue credit-linked notes and to which Lehman was a swap counterparty, an arrangement known as a synthetic collateralised debt obligation.
The case is drawing attention because swap counterparties are normally repaid ahead of other creditors, unless the counterparty is in default. It highlights the complexities Lehman administrators face in trying to unwind 1.2m derivative contracts worth a net $40bn to which the bank was a counterparty. Dante is one such transaction.
It is thought that there are about 1,000 transactions that Lehman is linked to which carry a similar subordination clause."
Keep the Faith...
Coach T
Lehman SPV ruling sparks controversy
This is a huge ruling in Lehman's favor IMO...
http://www.ft.com/cms/s/0/c74e7c5a-0aaf-11df-b35f-00144feabdc0.html?referrer_id=yahoofinance&ft_ref=yahoo1&segid=03058
"The dispute centres on the priority of claims for the Dante SPV. Dante is one of a string of SPVs created to issue credit-linked notes and to which Lehman was a swap counterparty, an arrangement known as a synthetic collateralised debt obligation.
The case is drawing attention because swap counterparties are normally repaid ahead of other creditors, unless the counterparty is in default. It highlights the complexities Lehman administrators face in trying to unwind 1.2m derivative contracts worth a net $40bn to which the bank was a counterparty. Dante is one such transaction.
It is thought that there are about 1,000 transactions that Lehman is linked to which carry a similar subordination clause."
Keep the Faith...
Coach T
Lehman SPV ruling sparks controversy
This is a huge ruling in Lehman's favor IMO...
http://www.ft.com/cms/s/0/c74e7c5a-0aaf-11df-b35f-00144feabdc0.html?referrer_id=yahoofinance&ft_ref=yahoo1&segid=03058
"The dispute centres on the priority of claims for the Dante SPV. Dante is one of a string of SPVs created to issue credit-linked notes and to which Lehman was a swap counterparty, an arrangement known as a synthetic collateralised debt obligation.
The case is drawing attention because swap counterparties are normally repaid ahead of other creditors, unless the counterparty is in default. It highlights the complexities Lehman administrators face in trying to unwind 1.2m derivative contracts worth a net $40bn to which the bank was a counterparty. Dante is one such transaction.
It is thought that there are about 1,000 transactions that Lehman is linked to which carry a similar subordination clause."
Keep the Faith...
Coach T
Barclays is supposed to have its consolidated oppostition to Rule 60 filed with the court by Jan. 29, 2010. FYI...
Coach T
Just in case you forgot what the Court has appointed the Examiner to investigate...Remember the Examiner is due out with reports on or before Feb 1...So Ordered to direct the appointment of an examiner in these jointly administered chapter 11 cases and, after due deliberation and sufficient cause appearing therefor, it is
ORDERED:
1. The United States Trustee is directed to appoint an examiner (“Examiner”) as soon as practicable.
2. The Examiner’s duties shall include an investigation (“Investigation”) as to:
• Whether LBCC or any other entity that currently is an LBHI chapter 11 debtor subsidiary or affiliate (“LBHI Affiliate(s)”) has any administrative claims against LBHI resulting from LBHI’s cash sweeps of cash balances, if any, from September 15, 2008, the commencement date of LBHI’s chapter 11 case, through the date that such applicable LBHI affiliate commenced its chapter 11 case.
• All voluntary and involuntary transfers to, and transactions with, affiliates, insiders and creditors of LBCC or its affiliates, in respect of foreign exchange transactions and other assets that were in the possession or control of LBHI Affiliates at any time commencing on September 15, 2008 through the day that each LBHI Affiliate commenced its chapter 11 case.
• Whether any LBHI Affiliate has colorable claims against LBHI for
potentially insider preferences arising under the Bankruptcy Code or state law.
• Whether any LBHI Affiliate has colorable claims against LBHI or any other entities for potentially voidable transfers or incurrences of debt, under the Bankruptcy Code or otherwise applicable law.
• Whether there are more colorable claims for breach of fiduciary duties and/or aiding or abetting any such breaches against the officers and directors of LBCC and/or other Debtors arising in connection with the financial condition of the Lehman enterprise prior to the commencement of the LBHI chapter 11 case on September 15, 2008.
• Whether assets of any LBHI Affiliates (other than Lehman Brothers, Inc.) were transferred to Barclays Capital Inc. as a result of the sale to Barclays Capital Inc. that was approved by order of the Bankruptcy Court entered September 20, 2008, and whether consequences to any LBHI Affiliate as a result of the consummation of the transaction created colorable causes of
action that inure to the benefit of the creditors of such LBHI subsidiary or affiliate.
• The inter-company accounts and transfers among LBHI and its direct and indirect subsidiaries, including but not limited to: LBI, LBIE, Lehman Brothers Special Finance (“LBSF”) and LBCC, during the 30-day period preceding the commencement of the chapter 11 cases by each debtor on September 15, 2008 or thereafter or such longer period as the Examiner deems relevant to the Investigation.
• The transactions and transfers, including but not limited to the pledging or granting of collateral security interest among the debtors and the prechapter 11 lenders and/or financial participants including but not limited to, JPMorgan Chase, Citigroup, Inc., Bank of America, the Federal
Reserve Bank of New York and others.
• The transfer of the capital stock of certain subsidiaries of LBI on or about September 19, 2008 to Lehman ALI Inc.
• The events that occurred from September 4, 2008 through September 15, 2008 or prior thereto that may have resulted in commencement of the LBHI chapter 11 case.
3. The Examiner shall perform the duties specified in sections 1106(a)(3) and (4) of the Bankruptcy Code, except to the extent the Court orders otherwise.
4. The Debtors, the Debtors’ affiliates and subsidiaries, and the UCC and their respective representatives are directed to cooperate with the Examiner in conjunction with the performance of any of the Examiner’s duties and the Investigation, and the Debtors and the UCC and other parties in interest shall use their respective best efforts to coordinate with the Examiner
to avoid unnecessary interference with, or duplication of, the Investigation. The SIPA Trustee and his representatives and the Examiner and his or her representatives shall also cooperate with
one another and coordinate their respective Investigations.
5. Until the Examiner has filed his or her report, neither the Examiner nor the Examiner’s representatives or agents shall make any public disclosures concerning the performance of the Investigation or the Examiner’s duties except that the Examiner, in the exercise of his or her discretion and in compliance with this order may file public reports as to completed phases of the Investigation or the progress of the Investigation.
6. The Examiner may retain attorneys and any professional persons, if he or she determines that such retention is necessary to discharge his or her duties, with such retention to be subject to Court approval under standards equivalent to those set forth in 11 U.S.C. § 327.
7. The Examiner and his or her Court-approved professional persons shall be compensated and reimbursed for their expenses pursuant to the procedures for interim compensation and reimbursement of professionals ordered in these cases. Compensation and reimbursement of the Examiner shall be determined pursuant to 11 U.S.C. § 330, and compensation and reimbursement of the Examiner’s professional persons shall be determined pursuant to standards equivalent to those set forth in 11 U.S.C. § 330.
8. The Examiner shall cooperate fully with any governmental agencies (such cooperation shall not be deemed a public disclosure as referenced above) including, but not limited to, any Federal, state or local government agency that currently or in the future may be investigating the Debtors, their management or their financial condition, and the Examiner shall use best efforts to coordinate with such agencies in order to avoid unnecessary interference with, or duplication of, any investigations conducted by such agencies. The Examiner will follow a protocol to be established with the governmental agencies for the sharing of information to the extent that such sharing benefits the Debtors’ estates, and such sharing of information shall be subject to appropriate conditions to protect the Debtors’ estates.
9. This Order is without prejudice to the Examiner’s seeking other relief from the Court as the Examiner may deem appropriate in furtherance of the discharge of his or her duties and the Investigation.
10. All parties in interest may use any documents or other materials disclosed in the Examiner’s report in any proceeding in these chapter 11 cases consistent with the Federal Rules of Bankruptcy Procedure and the Federal Rules of Evidence.
11. The Examiner, when appointed, is directed to promptly meet and confer with the representatives of the Debtors, the UCC, TWDC, Barclays, NYS Comptroller, the Harbinger Funds, BoA, the Lead Plaintiffs, the U.S. Trustee, and the United States Attorney for the Southern District of New York to develop a work plan and plan to coordinate the Investigation so as to avoid replication of efforts and duplication of services and other matters pertinent to the Examiner’s Investigation and, thereafter, submit an appropriate order to the Court setting forth the material items of the work plan and any process agreed upon to avoid replication and duplication and, to the extent that there is no agreement or consensus as to such work plan, plan of coordination, and a proposed budget, all to be incorporated into an appropriate Order of the Court, the Examiner shall promptly report to the Court the failure to reach agreement and
consensus and submit to the Court the Examiner’s recommendations for resolution of the issues and, thereafter, the Court, upon such notice and a hearing or chambers conference as it may deem necessary, shall resolve the issues and enter an appropriate order.
12. The work plan described in the immediately preceding paragraph shall be completed within twenty (20) days from the date that the court approves the appointment of the individual selected by the United States Trustee to serve as Examiner. If the work plan is not completed within this twenty day period, a hearing shall be held on the next scheduled omnibus hearing date to determine the cause of such delay.
13. The court retains jurisdiction with respect to all matters arising from or related to the implementation of this order.
Dated: January 16, 2009 New York, New York
_/s/ James M. Peck____________________
UNITED STATES BANKRUPTCY JUDGE
Keep the Faith...Coach T
Agreed...for the couple of days.
Coach T
This gives me the impression that LBHI is thinking of issuing stock of more than one debtor entity.
That would be a new twist...There are about 20 different debtor companies under the Chapter 11 protection. Many more that are not under Chapter 11.
Sounds like they are thinking of issuing stock in multiple companies.
Just my thoughts...for what it is worth. I found the verbage quite interesting.
Coach T
This is an additional excert from LBHI Docket 6699...still absorbing this document (looking for the tell).
DEBTORS’ MOTION PURSUANT TO
SECTIONS 105(a) AND 362 OF THE BANKRUPTCY
CODE FOR APPROVAL OF CERTAIN RESTRICTIONS AND
PROCEDURES APPLICABLE TO TRANSFERS OF THE DEBTORS’ SECURITIES
(Page 4)
The Stock Trading Order is intended to prevent an ownership change prior to a chapter 11 plan, thereby preserving the use of Lehman’s Tax Attributes during the pendency of the Debtors’ bankruptcy cases.
This Motion seeks to preserve the Debtors’ ability to
maximize the potential value of the Tax Attributes in connection with the implementation of any chapter 11 plan involving all or part of the Debtors’ current assets.
It is now possible that one or more of the Debtors’ chapter 11 plans will involve the issuance of new common stock in one or more of the Debtors (or their successors) and the distribution of such stock to certain creditors in satisfaction, in whole or in part, of their Securities.
This issuance and distribution likely would result in an “ownership change” under section 382. In such event, the Debtors may be entitled to the special relief afforded by section 382(l)(5) of the Tax Code for ownership changes pursuant
to a confirmed chapter 11 plan or applicable court order
Such relief, however, may not be available if the trading and accumulation of Securities prior to the effective date of a chapter 11 plan is left unmonitored and unrestricted.
Coach T
Thank you...
Coach T
I fully agree Uhlmant. If you were sitting at the poker table and after playing hand for period of time you noticed a change in behavior trying to expand upon a play made earlier in the hand it would be a tell.
It is the timing of the expansion of the ownership rules that is the tell in my opinion. Not the action. The Common and Convertible ownership rules were put into play almost immediately after the filing.
Why the delay in going after the Preferreds...and why now? These A&M guys do this for a living. Did they all of the sudden see something that they missed?
We will find out...
Coach T
The EC has already been attempted back in October of 2008.
At that point, the Judge ruled there were just too many facts to sort through to allow an additional expense of laywers to try and get the same information that the Creditors Committee, Examiner, Numerous requests for Discovery, etc. were already searching for.
That was the right call at the time.
Look how much the Creditor Committee has cost the estate. Not that they haven't been worth it. Just no need to duplicate expenses at that time.
My personal expectation for the new balance sheet is liabilities are going to be negotiated down and assets are going to show improvement. All closing the gap towards A=L.
At that time the clammoring will start to form the EC and deservedly so...just my opinion. Make your own decisions.
Coach T
Remember...Feb and Mar of 2010.
Starting with the Examiner. The fireworks are getting ready. After the Examiner, will be the MOR for Feb and I think we might see the new Balance sheet for Sept, 2009.
After that, we will see the first of what I think will be many reorg plans submitted to the court. Mr. Miller mentioned after Mr. Marsal completed his presentation to the Court in November, 2009 that there were multiple parties talking to LBHI.
It is in the court transcripts.
Coach T
Question for the WAMU faithful...
Has WAMU ever tried to restrict the amount of total ownership for any of the classes of Trusts, Preferred, or Common shares as they are attempting with Lehman?
Thanks
Coach T
Sorry I missed out on the great discussion going on last night!
IMO there are not that many entities that are in the 5%+ ownership status...Of the almost 3M shares I have I am only over the 4.5% threshhold on one of the Preferred classes.
That position is only at 5%. I have a call into the unsecured creditors committee as we speak to find out if they know what strategy is trying to be put in place with Docket 6699. Will let everyone know.
My intent is to use the small extra amount that I am over as a way to leverage for more knowledge.
When I first started buying the Lehmans. I bought which ever class offered the lowest price and highest dividend. I ended up with all of them.
I will post the board over the next ten days as to my discussions with various Lehman forces.
Coach T
PS I am still buying at these prices...with orders in today.
I understand...however, the cap trusts are not mentioned in the Docket 6699. As detailed as this docket is about technicals I would have thought that the trusts or their symbols would have been stated in the same breath as the statement.
Just a thought...
Coach T
Here it is...
Not certain if this will apply but it is taken out of the same LBHI Docket# 6699...Do your own due diligence!
Restriction on Use of Tax Attributes Following Change of Control
However, the Tax Code provides an exception to this annual limitation for
a debtor corporation where certain conditions are satisfied. Under section 382(l)(5) of the Tax
Code, a debtor corporation (or group) is not subject to the annual limitation ordinarily imposed
by section 382 the Tax Code if the debtor’s pre-change shareholders (i.e., persons or entities who
owned the debtor’s stock immediately before the ownership change) and/or “qualified creditors”
emerge from the reorganization owning at least 50% of the total value and voting power of the
reorganized debtor’s stock immediately after the ownership change. See Tax Code
§ 382(l)(5)(A). For this purpose, holders of certain debt-like preferred stock are treated as
creditors. See Notice 88-57.
Coach T
I posted today in an underlined red sentence, text from Docket #6699 a statment that some Preferreds may take on the "Creditor" status.
I was surprised that no one commented on it. I thought that was one of the most important sentences of Docket 6699. I will try and find it again.
Coach T
lxu...
Thanks for the heads up yesterday on Docket #6699. I was unaware that LBHI had submitted a motion to include the Preferreds in the ownership restriction until I re-read your post.
I think the leverage afforded by the regular Preferreds at these prices gives a better bang for the buck. Just my opinion.
I own more than the proposed allowed 4.5% in some of the Preferreds. As we speak, I am buying more of the J's here. For what it is worth...make your own decisions.
Coach T
LBHI Docket #6714 illustrates how dramatically LBHI is actively reducing claims. Here is an excerpt...
In addition, the Global Settlement provides for a reduction in the potential
liability of LBHI’s estate with respect to the Proofs of Claim of more than $350,000,000. In
exchange, LBHI has agreed to grant the Stamford Entities allowed general unsecured claims in
the aggregate amount of $65,000,000 against LBHI in respect of claims filed in excess of
$416,000,000 in the aggregate. Even if the amounts set forth in the Proofs of Claim are
overstated, and LBHI does not concede their validity, challenging them would be expensive and
time consuming and there is a risk that its estate could be liable for the full amount of the Proofs
of Claim and the additional legal costs incurred pursuant to such challenge.
These items are almost coming faster than the ability to keep up. Keep the Faith.
Coach T
There is nothing in the Docket that the article was about that freezes trading. It limits the total amount of any one class of Preferred Stock ownership.
The article misstates this. Read Docket # 6699 and you can see for yourself.
Coach T