Lehman Brothers Financial SA (LEHNQ)

[Joe Stocks]

Hi Martin, First of all NOLs are being used now to offset and operating gains LBHI may have during liquidation. A significant reason for the OBS is so the NOLs would remain available through liquidation. Once liquidation is complete LBHI will fall short about $150 bil in paying off creditors. That means that creditors will be able to write off that $150 bil. That means cancellation debt of $150 bil for LBHI. The IRS basically says that you can not write off $150bil in debt, and keep $55bil in NOLs. Once LBHI is totally liquidated (that means nothing left) the NOLs will all be eliminated.

Look at it this way. The IRS will see creditors writing off $150 bil in debt from their earnings. Why would you think that the company that generated those write offs by failing to payback their creditors will also be able to write off additional sums from NOLs.

What many fail to grasp here is that this is a total liquidation for the benefit of creditors. That means EVERYTHING will be monetized to pay back creditors. There will be no remaining business. If there was it would be sold off too for the benefit of the creditors.

SEction 382 of the IRS code pretty much covers all of this stuff.
Lehman's cancellation debt basically kills the NOLs. The letter LBHI received from the IRS confirms that.

From LBHI;
the reduction of the

LBHI Tax Group’s NOLs as a result of the discharge
of debt pursuant to the Plan generally would not
occur until completion of the liquidation. Upon
completion of the liquidation of the Debtors, all
remaining NOLs of the Debtors will be eliminated.

I do not know how that could be anymore clear.