Any posts are my opinion, and should not be relied on for your investment decisions.
Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Re-post of 2009 WSJ article (thought this was a timely re-post)
By JEFFREY MCCRACKEN and ALEX FRANGOS
Eight months after its plunge into bankruptcy, Lehman Brothers Holdings Inc. is taking steps to spin off the Wall Street firm's remaining assets -- a collection of battered real-estate and private-equity holdings -- to investors willing to bet the value will rise as the economy recovers.
The unit oversees everything from corporate-bank debt and risky consumer mortgages to Miami condos and New York apartment complexes. Internal Lehman calculations have pegged their fair-market value at about $45 billion. That is down by more than half since last September, when the financial crisis flared after Lehman's collapse. Lehman values the assets at $400 billion at nondistressed prices, including $300 billion in the servicing of assets
People inside Lehman have begun calling this division Lamco, short for Legacy Asset Management Co. Lehman hasn't determined if it can or will use the name in a spinoff.
A spinoff would be the most significant move yet to clean up the bankruptcy estate of the once-storied investment bank, which owes creditors some $200 billion.
The commercial real-estate market remains deeply fraught. Most analysts expect it to worsen this year as rents fall and landlords default on mortgages. Many of Lehman's loans were made to condo and hotel developments, two of the hardest-hit sectors.
But executives now running the remnants of Lehman say they want to be prepared for a rebound in asset values. Their plan is first to legally separate the asset-holding company from the bankruptcy estate by the beginning of 2010. Later it would begin selling company shares to the public.
"This would be a bridge to a better time. Today's market is an aberration. We don't think it will stay like this," said Bryan Marsal, Lehman's chief restructuring officer and co-CEO of the advisory firm Alvarez & Marsal.
Company executives don't expect the new venture simply to manage Lehman's legacy property holdings. The entity could become much more active than current bankruptcy law permits, free to dabble in distressed commercial real-estate debt.
Another possibility: Participate in federal efforts such as the Public-Private Partnership Investment Program, to purchase and manage toxic loans from bank balance sheets.
"It will take some time, but we hope this would turn into a real business that could also manage the assets of other businesses, such as what's being proposed by Treasury," Mr. Marsal said.
The plan is in preliminary stages and would need approval by Lehman's creditors, board and a U.S. bankruptcy judge. Creditors, perhaps via a trust, would own the spun-off company and its profits would go to paying claims. Creditors would decide later when to sell shares on the open market. Employees also would get a partial stake.
Lehman's finance chief, William Fox, estimates Lamco has generated about $8 billion in positive cash flow since Lehman's bankruptcy filing, accounting for the majority of the company's $11 billion cash balance. When it filed for bankruptcy protection, Lehman had about $200 million in cash on hand.
"Given our liquidity, we don't need to be selling things at a significant discount to fair-market value," said Mr. Marsal, whose firm was hired to manage Lehman late on Sept. 14.
Lamco has three divisions: real estate, banking and private equity. It employs about 2,300 people, overseeing assets that are valued at $40 billion to $45 billion.
.The biggest division is real estate, which has both commercial and residential holdings around the world. Mr. Marsal estimated the division manages about $20 billion or more in assets.
The banking group holds about $13 billion in corporate debt. The private-equity piece includes both Lehman's private-equity funds and others in which it has limited-partnership interests; this unit oversees about $12 billion in assets.
There also is a separate derivatives book, valued at $36 billion in September 2008, which has been wound down drastically.
A new company containing so many disparate parts might be a hard sell.
"I'm not sure if the market would react positively to a mishmash of holdings within commercial real estate," said William Marks, a real-estate stock analyst at JMP Securities in San Francisco.
The Lehman spinoff would create one of the largest real-estate operators, managing $20 billion in equity and loan positions, tied to everything from office skyscrapers to raw land.
Lehman's biggest real-estate asset is apartment giant Archstone, which Lehman took private for $22 billion in October 2007. Lehman spent more than $4 billion on the venture, a deal widely seen as burdening Lehman's corporate balance sheet in its dying days.
Today, Lehman, with the court's approval, has put $230 million more into Archstone, hoping its big city luxury apartments regain their value on the other end of the recession.
Write to Jeffrey McCracken at jeff.mccracken@wsj.com and Alex Frangos at alex.frangos@wsj.com
http://online.wsj.com/article/SB124226784650518167.html
Who picked up the 1000 shrs @ .0001 of LEHNQ today (10:36am EDT)? Anyone here grab them?
LEHNQ * 10:36am EDT 0.0001 0.00 +0.00% 0.0001 0.0001 1,000 0 - Chart
What would be the optimal timing for IPO of Archstone?
- Early in the 20yr span of NOLS
- While Market has IPO appetite
- Before Europe derails markets
- While Large money center Banks are eager for deals to place
Objectively, I'm thinking they make move on Archstone by Sept.
Agree, discussion has been very good...truly appreciate everyones comments (either pro or con re: CT chances at waterfall).
For a chuckle -
90 seconds that describes the sad reality of US banking and politics - in Dr.Seuss style prose:
watch the youtube video in this link:
http://www.zerohedge.com/news/banks-and-whole-democracy-thing-90-seconds-or-less
RE: Discharge of CTs
Here is where the prospectus rules (Pg 20 - link below) and here is where our CTs rank to other Equity:
"Status of the Guarantees
The guarantee will constitute an unsecured obligation of Lehman Brothers Holdings and will rank:
•subordinate and junior in right of payment to all other liabilities of Lehman Brothers Holdings,
•on a parity with the most senior preferred or preference stock now or hereafter issued by Lehman Brothers Holdings and with any guarantee now or hereafter entered into by Lehman Brothers Holdings in respect of any preferred securities of any affiliate of Lehman Brothers Holdings, and
•senior to Lehman Brothers Holding's common stock.
http://www.sec.gov/Archives/edgar/data/806085/000104746905000357/a2149684z424b2.htm
Reading over the POR for the 10th or greater time -
On pg 81 (it looks like our re-distro to higher classes were capped at what our pro rata share would have been). Wasn't the orig pro rata amount ~7% of FV for class 10A,B,C? I could be reading this incorrectly or have the amt (~7%) wrong.
Heres the specific section(s)-
6.4 Redistribution of Subordinated Claims Recoveries. To give effect to agreements of holders of Subordinated Claims, all Distributions under the Plan made by LBHI shall be
calculated as if each holder of an Allowed Claim in LBHI Class 10A, LBHI Class 10B and LBHI Class 10C were to receive its Pro Rata Share of Available Cash from LBHI, and, in the case of
each holder of an Allowed Claim in LBHI Class 10A and LBHI Class 10B, its Pro Rata Share of the Subordinated Class 10C Distribution; provided, however, that:
Section 4.3 LBHI Class 3 – Senior Unsecured Claims against LBHI.
(a) Impairment and Voting. LBHI Class 3 is impaired by the Plan. Each holder of an Allowed Claim in LBHI Class 3 is entitled to vote to accept or reject the Plan.
(b) Distributions. Each holder of an Allowed Claim in LBHI Class 3 shall receive its Pro Rata Share of (i) Available Cash from LBHI, (ii) Subordinated Class 10A
Distribution, (iii) Subordinated Class 10B Distribution, (iv) Subordinated Class 10C Distribution
and (v) the Plan Adjustment.
Nevermind, got it out of the docket list
See pg 13
http://dm.epiq11.com/LBH/Docket#Debtors=1906&DocketNumber=27649&RelatedDocketId=&ds=true&maxPerPage=25&page=1
Can someone post a link to the current bal. sheet?
What's left on the Asset side to pay off higher classes than 10B, not including Archstone?
All the FMCC and FNMA tickers used to be followed by a .OB
Ex - FMCC.OB (old ticker), just FMCC as of today
Why was the .OB dropped from the tickers today? All the Yahoo msg boards are gone (FMCKJ and FNMAS) were quite active for GSE prefs.
Tried looking at the OTC and FRE websites for info on the ticker change...nothing I could find.
Any thoughts?
RE: Archstone value, I did find this from 2010...
http://uk.reuters.com/article/2010/06/15/us-property-summit-archstone-ipo-idUSTRE65E58220100615
Here they put the value at $18 to $20B.
This was an interesting comment:
"I believe a lot of the IPO pipeline may well get absorbed, not in an IPO but in an M&A context. As they come to market, if you want to put a for-sale sign on a business, you file an S-11 (regulatory disclosure document) and I can tell you, if it's an apartment company, they'd probably have a few bidders," Cicco said.
Any ideas what an Archstone IPO would be worth?
I read that LEH paid $22B, for I believe the fractional share it had owned originally...what is the complete company worth today?
Thoughts?
Should have clarified...what would the value be to a company looking to acquire Newco (old LEH)?
The more I think about it, the true value could vary greatly (dependent on many factors that will not be known until we get further down the road).
Does the 20yr carry forward start in 2008 or 2012?
I'm trying to figure out what the NOLS would really be worth (in % terms).
The Fed corp tax rate is ~30%, but I think that est. would be high in this case. So NOLs of ~75B, are worth less than $25B.
Is this correct?
Plus, whatever illiquid Assets remain from Lehman or companies they acquire during the liquidation (Archstone, maybe others).
These two (NOLS + Assets) would ultimately provide the total value of NEWCO that would be aquired (or possibly NEWCO continues to aquire to max NOLs and Revenue).
Good article from Alvarez & Marshalls website
http://www.alvarezandmarsal.com/en/global_services/tax/enewsletter/archives/DisplayEnewsletter.aspx?enewsletter_id=177&camp=taw&div=tas&date=Feb28&desc=issue10
Of particular interest here...skip down to the section of the article "The "Bankruptcy Exception" — Section 382(l)(5)"
From the Guardian article "£1tn"...a trillion pound balance sheet???
Nice if some of those Assets in £'s will be coming back to LBHI in $.
Also noted PwC saying 20years to unravel.
Link again-=
http://www.guardian.co.uk/business/2012/apr/13/lehman-debt-pwc-unravel
Little more detail from the Guardian
http://www.guardian.co.uk/business/2012/apr/13/lehman-debt-pwc-unravel
Here's a working link
http://uk.finance.yahoo.com/news/lehman-brothers-administrators-first-dividend-172420542.html
If one of the subsidiaries has to pay divi, then by default do they need to pay divis on the CTs for LBHI?
Quick calculation - my scenario in previous post would save LBHI greater than $75million in additional year of interest that compounds quarterly across all CTs (I did not compound over the year..so its greater than $75M).
CTs
$in annual
Mill int. ann int.
300 0.06375 19.125
300 0.06375 19.125
400 0.06 24
200 0.0624 12.48
74.73x 1,000,000=$74,730,000
Again...I think this is a BIG, "what if".
GLTA
Agree with HESTHEMAN in post #9162 - this is a "what if"
Just a quick thought...if they plan on dealing with the CTs within the next five years post POR - it would be cheaper to pay the cumulative deferred divis on CTs now (and immediately defer again). Would save an additional year of interest that compounds quarterly across all CTs.
GLTA
Checked all the prefs prospectus and CTs(quantumonline.com, sym=LEH, then click 'all related securities')...FWIW only the CTs have the stipulation "The company has the right, at any time, to defer dividend payments for up to 20 consecutive quarters (but not beyond the maturity date)."
So the 20 quarter deferral is unique to the CTs.
My thoughts...if the sub-notes backing these CTs have a 20 quarter deferral rule, we have a better (albeit extremely LOW) chance of a single payment.
Again, I think this is a very low probability.
Interest is cumulative and compounded quarterly (so calcs of ~7.50/shr are low, due to compounding & using 6%).
From the LEHKQ prospectus-
“If Holdings defers interest payments on the subordinated debentures, the trust will also defer distributions on the preferred securities. Any deferred distributions will accrue additional amounts due at an annual rate of 6.375% compounded quarterly. Once Holdings pays all deferred interest payments on the subordinated debentures, with accrued interest, it can again postpone interest payments on the subordinated debentures as described above.”
Do all the sub-notes (Class 10A,B,C) have the 20 quarter deferral option? Or was it only the CTs that had this divi deferral built-in?
If its only the CTS...20 quarters of back divi payments = ~$7.50/shr. (I used 6% for all calcs).
That would be an approx payment of $360M on 48M CTs outstanding.
Quite a low probability IMHO, but I'd love to see it in my account.
Lehman creditors to gain from BATS IPO ($54M of its $103M stake) to be sold at IPO
Link-
http://www.ft.com/cms/s/0/b6dad94a-6c87-11e1-bd0c-00144feab49a.html#axzz1p2bjIzL1
We are in both class 12 and class 10B:
The CTs are preferred shares backed by 10B sub notes. From the prospectus:
"The trust that is issuing the preferred securities will have no assets other than subordinated debentures issued by Lehman Brothers Holdings. These debentures will have essentially the same terms as the preferred securities. Therefore, the trust can only make payments on the preferred securities if Lehman Brothers Holdings first makes payments on the subordinated debentures."
The equity piece (CT prefs) are cancelled, but retain higher payment status than the prefs & common in the Trust
The sub-notes in 10B still retain rights/claims to payment...if they get a distribution, then we get a distribution. The CT Pref shares are backed by a portion of each sub-note in 10B
Gonna be a long wait now...hope for additional claim reductions in the classes above us and higher amounts for LBHI sold assets. May get an equity piece of some spinoff (low chance).
GLTA
Under the terms of the settlement, the J.P. Morgan funds will give $699.2 million that's currently being held as collateral to Lehman, and the money will be disbursed to other Lehman creditors. Judge James Peck of U.S. Bankruptcy Court in Manhattan has scheduled a hearing for Feb. 15 on the deal. In return, J.P. Morgan will have some other claims reinstated and get $15 million in cash
link
insert-text-here
Agreed Starnes.
For those of us who see this through and if there is some $$ at the end...first celebratory round is on me.
Best JW
Fortunately this is being decided by Attorneys who want to get paid ASAP (after years of litigation)...lets take the 65B and our % fee now! Additionally, by top tier creditors who also want as much as they can get today (after years of attorney fees and litigation). Neither party wants to hang around for years and are looking for what they can get relatively quickly. I think that is good for lower tier creditors in the most complex firm and bankruptcy in US history. Higher probability for lower tier payouts later on.
Using the average price of the CTs lately (.04 to .08), that equates to a simple market priced probability of them being worth something at 1.6% to 3.2% (or 96.8% to 98.4% probability that they are worthless based on recent prices). Looking over the huge list of illiquid assets, reduced claim amounts, deals being worked and future potential post re-org...I think the implied price probability is incorrect. I agree with many here buy and hold (it may be a long hold).
GLTA
The POR stipulates for 10B...
From page 206 of the POR
4.14 LBHI Class 10B – Subordinated Class 10B Claims against LBHI.
(a) Impairment and Voting...
(b) Distributions. Holders of Allowed Claims in LBHI Class 10B shall not receive any Distributions on account of such Claims unless and until all holders of Allowed Claims in LBHI Class 3, LBHI Class 4A, LBHI Class 4B and LBHI Class 5 are satisfied in full, in which case each holder of an Allowed Claim in LBHI Class 10B shall receive its Pro Rata Share of (i) Available Cash from LBHI and (ii) Subordinated Class 10C Distribution.
From page 490 of the POR
Total allowed claims in Class 3 ($83.7B), 4A ($52.3B), 4B ($11.6B), and 5 ($52.7B) (see .pdf Pg 490 of the POR) = ~$200B before we get any distributions according the POR.
disclosure – I will hold the CTs till the end, NOLs and future equity ownership or distributions starting after the above classes. Slim chance we get bumped up with JPM, but I’d take that too.
GLTA
RE: "That sounds like a payoff in New Securities rather than Liquidation Cash - and a possible continuation of business"
I think it leaves the option open to maximize possible payments in cash or as debt/equity in a healthy entity or new entity.
Toogoods #s on recievables ($101.44B), cash flow ($32.2B), and investments in affiliates ($70B) are intriguing. Add this to thier illiquid assets (??B worth in the end) and thier current cash on-hand ($23B) = something greater than $226.64B (depending on what the illiquid assets are sold for). We need $257.6B before CTs get any $$.
The NOLs in my back of the napkin calculations merely bring these numbers to tax free for now and cannot be added into the total. I could be wrong here.
Bottomline...very poor transparency on the numbers (I still don't know why the media is fixated on the $65B (that was an initial estimate based on % of allowed claims = meaningless).
I'm on the fence...still holding my CTs. GLTA
Linda,
I agree that the total allowed claims ($257.6B) will need to be paid prior to the CTs reaching any $$$.
As for the NOLs, I believe the initial intent is to keep them and off-set any taxes on Asset Sales. This will help, but that $257.6B is a large number before CTs get paid a dime.
In the POR, under the estimated plan recovery (pg 451 of 791 pg using the PDF #s).
Questions -
Under the POR are Classes 1-9B limited to the estimated recovery or up to $65B (pg 451 est. shown as $43.7B) or Classes 1-9B limited to up to the total amt of allowed claims ($257.6B)?
Also, what else is classified as 10A - C (pg 451 shows $15.278B)? The CTs are only $1.2B
Anyone know the correct answers...I'm trying to research as well.
Also, this maintains the NOLS for the benefit of all parties in the $65B (in the end it may help push the dollar amt above $65B).
It may be a few years before anything is known for the CTs, Prefs, Comm.
GLTA
Basedon the POR - Comm, Pref, CTs are going into a liquidating trust on the effective date.
From the yahoo msg board (I agree with this posters assessment)
http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_L/threadview?m=tm&bn=10602&tid=263237&mid=263254&tof=-1&rt=2&frt=2&off=1
Let's hope over the next few years they can scrape toghether more than $65B. Any additional will fall to the Class 10A-C unsecured creditors (CTs) and then the Prefs and finally the Comms.
Each class here needs to be paid in full prior to the next lower recieving anything. The total CTs are $1.2B.