Bank holding companies are REQUIRED BY REGULATION to report trust preferred shares as capital equity. They receive huge tax/accounting credit for doing so. Before bankruptcy, trust preferred shares were EQUITY (allthough they were attached to the sub bonds as debt...they were always reported as tier 1 capital equity). After the chapter 11 filing, bankruptcy courts are required by law to classify trust preferred stock as DEBT, not equity. In a reorganization, for the company to utilize maximum NOLs do you know what the CTs would be classified as? Answer: It really does'nt matter whether they are classified as debt or equity as long as they meet the requirement for old/cold. The reorganized company can issue it's new shares to either old/cold debt or old/cold equity as "ownership" in the new company. Considering bankruptcy chap 11 must follow absolute priority law....we are ahead of traditional preferred equity and common shareholders to receive any stake of that new company. Remember, our share structure for all CTs combined was a paltry 48 million. The reorganized company could easily settle CT holders by issuing them new shares whereas they would have to issue many, many shares to satisfy all regular preferred and common holders (thus they rolled preferred and commons into ONE BIG share to preserve them) It benefits Lehman to use CTs because the new company can then receive their max limit on NOLs as long as 51 percent of the company is made up of old cold equity/debt. Make sense?
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