Lehman Brothers Financial SA (LEHNQ)

[indepth05]

Nov 25, 2015
Interview with Ali Meshkati (AM), founder and investment manager of T11 Capital.

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RH: And lastly, I believe you own Lehman Brothers Capital Trust Preferred shares. What made you take a position here and do you continue to see upside?

AM: This is our smallest position, representing about 2% of overall equity. The recovery for Lehman creditors has been more than $100 billion to date. The trups receiving a creditor recovery is a low probability proposition. However, there is a possibility that the trups can be converted into new equity representing the various profitable operating remnants of Lehman to take advantage of the $50 billion-plus net operating loss that is leftover.

Shortly after the Lehman bankruptcy, those in charge of the liquidation formed a company they named LAMCO to assist in the liquidation of the remaining assets. This wasn’t a small operation, as LAMCO originally had close to 500 employees. The assets in liquidation have exceeded even the most aggressive estimates. In the meantime, LAMCO has become a substantial business, although the exact numbers are difficult to ascertain.

The most logical move forward would be to create a public traded company that would take advantage of the NOLs leftover from Lehman through LAMCO initially, possibly rolling in smart acquisitions over time. This would give former equity, including the trups, a stake in the newly formed company.

The stick in the wheel is the cancelation of debt income that can nullify the NOL. There is precedent through the courts for preservation of the NOLs working around the cancelation of debt income requirements, however.

Our position in the Capital Trust shares is basically a call option on a positive outcome for the reemergence of Lehman in a yet to be determined form.

http://www.valuewalk.com/2015/11/t11-capital-aum/