Lehman Brothers Financial SA (LEHNQ)

[jwnoble3]

LBHI and its joint venture may also get payment on the LBIE prefs owned by LBHI2 and LBL. These prefs were contributed to joint venture with Elliot, King Street and LBHI2,

Background-
The latest balance sheets have included the following note:

"If LBIE makes distributions on the Preferred Equity before aggregate distributions from the Joint Venture to the Funds and LBHI2 have reached GBP 2.2 billion (plus interest), then, in certain circumstances, LBHI2, Lux Finance and LBHI shall be obligated to make payments to preserve the economic terms of the transaction as if 100% of the Preferred Equity proceeds had been transferred by LBHI2 to the Joint Venture."

Our Capital Trust preferred rank from the prospectus-
"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"

Question - If LBIE makes a distribution on their preferred equity to the joint venture, then would capital trust holders understand that LBHI would be obligated to make payments to the non-debtor Capital Trust preferred holders that have parity rank to the LBIE preferred equity?

Any thoughts?


More info regarding LBIE capital shares-
LBIE was incorporated on 10 September 1990 under the Companies Act 1985 as a company limited by shares. On 21 December 1992, it was re-registered as an unlimited company. It appears that this step was taken for US tax reasons. Re-registration of LBIE as an unlimited company enabled it to be treated as a branch of its then parent company for US tax purposes, thereby enabling losses in LBIE to be set off against profits in the parent.

The share capital of LBIE comprises 6,273,113,999 ordinary shares of $1 each, 2 million 5% redeemable Class A preference shares of $1000 each, and 5.1 million 5% redeemable Class B shares of £1000 each. All these shares, except for 1 ordinary share, are held by LBHI2. The two classes of preference shares result from capital restructurings of LBIE in 2006 and 2007, to which I shall refer below. The remaining ordinary share is held by LBL.

The sole function of LBHI2 was to act as the immediate holding company of LBIE.