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Lehman says Archstone unit needs more equity

9:15am CDT
Wed Nov 3, 2010 9:39am EDT

* Archstone would convert another $237 mln debt to equity

* About $5.4 billion of debt would be eliminated

* Lehman acquired Archstone in $22.2 bln takeover in 2007

NEW YORK, Nov 3 (Reuters) - Lehman Brothers Holdings Inc (LEHMQ.PK) said it wanted its Archstone-Smith Trust unit to convert an additional $237 million of debt into equity to maximize the value of that real estate business.

According to a filing in the U.S. Bankruptcy Court in Manhattan, which is handling Lehman's Chapter 11 case, the company previously sought to restructure Archstone in part by reducing $5.2 billion of debt through an equity conversion. The change would boost that sum to roughly $5.4 billion.

"The restructuring, as modified, is necessary, in the debtors' judgment, to allow the debtors to maximize the prospect of a recovery on their investments in Archstone," wrote Shai Waisman, a Weil, Gotshal & Manges LLP partner who represents Lehman.

Archstone's restructuring requires court approval.

Lehman's $22.2 billion takeover in 2007 of the nation's second-largest real estate investment trust added hundreds of prime apartment buildings nationwide to the company's portfolio.

The takeover was ill-timed, however, and saddled Lehman with more debt just as the U.S. property market was in the early stages of a precipitous fall.

Lehman owns 47 percent of Archstone. Barclays Plc (BARC.L) and Bank of America Corp (BAC.N) share another 47 percent, and invested $4.8 billion of equity into Archstone. Talks with them on the restructuring are ongoing, Lehman said.

Tishman Speyer Properties, a New York real estate firm, joined with Lehman in the Archstone buyout.

Anton Valukas, Lehman's court-appointed examiner, in March cited Archstone as among a handful of real estate transactions that caused Lehman's balance sheet to grow too large.

Once the fourth-largest U.S. investment bank, Lehman filed for Chapter 11 protection on Sept. 15, 2008. It is trying to sell assets to pay creditors. Lehman's bankruptcy is six times larger than any other in U.S. history.

The case is In re: Lehman Brothers Holdings Inc et al, U.S. Bankruptcy Court, Southern District of New York, No. 08-13555. (Reporting by Jonathan Stempel; Editing by Lisa Von Ahn)

http://www.reuters.com/article/idCNN0310352420101103?rpc=44