Beruflich Dokumente
Kultur Dokumente
February 2010
INTRODUCTION ......................................................................................................................... 1
I. CHAPTER 11 CASES....................................................................................................... 3
A. Use of Estate Assets............................................................................................... 3
B. Relief from Automatic Stay Motions..................................................................... 6
C. Retention of Professionals ..................................................................................... 8
D. Bar Date Issues ...................................................................................................... 9
E. Case Administration Issues.................................................................................. 10
F. Miscellaneous ...................................................................................................... 10
i
INTRODUCTION
On September 16, 2008, the Debtors, Lehman Brothers Inc. (“LBI”), and
Barclays Capital Inc. (“Barclays”) entered into an asset purchase agreement for the
purchase and sale of LBI’s assets, three real properties, including the Debtors’
headquarters, and two data centers (collectively, the “Barclays Sale”).
On September 20, 2008, the Court approved the Barclays Sale and entered
concurrent orders to that effect in the Debtors’ chapter 11 cases (the “Chapter 11 Cases”)
and in the SIPA Proceeding.
On March 12, 2009, the Court granted Lehman Brothers Finance AG a/k/a
Lehman Brothers Finance SA (“LBF”), a wholly owned non-Debtor subsidiary of LBHI
subject to bankruptcy proceeding in Switzerland, recognition as a foreign main
proceeding under chapter 15 of the Bankruptcy Code and dismissed LBF’s pending
chapter 11 case.
1
The following Committee members were initially appointed: Wilmington Trust
Company; The Bank of New York Mellon; Shinsei Bank, Limited; Mizuho Corporate
Bank, Ltd.; The Royal Bank of Scotland, PLC; Metlife; and RR Donnelley & Sons.
Pursuant to the Third Amended Appointment of Official Committee of Unsecured
Creditors filed by the U.S. Trustee on February 9, 2010 [Docket No. 7034], the
Committee currently consists of the following seven members: Wilmington Trust
Company; The Bank of New York Mellon; Elliott Management Corp.; Mizuho Corporate
Bank, Ltd.; Metlife; The Vanguard Group Inc.; and U.S. Bank, National Association.
1
On May 22, 2009, the Court granted Lehman Brothers Bankhaus AG
(“Bankhaus”), a wholly owned non-Debtor subsidiary of LBHI subject to an insolvency
proceeding in Germany, recognition as a foreign main proceeding under chapter 15 of the
Bankruptcy Code.
On September 24, 2009, the Court granted Lehman Re, Ltd., a wholly
owned non-Debtor subsidiary of LBHI subject to a compulsory winding up proceeding in
Bermuda, recognition as a foreign main proceeding under chapter 15 of the Bankruptcy
Code.
The following report has been prepared by the Committee in accordance with the
Committee’s obligation to share information with the Debtors’ unsecured creditors
pursuant to section 1102(b)(3) of the Bankruptcy Code, as well as the Creditor Access
Stipulation [Docket No. 498]. This report summarizes the motions resolved during the
month of February 2010 in both the Chapter 11 Cases and the SIPA Proceeding, as well
as the adversary proceedings commenced during such period.
2
I. CHAPTER 11 CASES
The Debtors sought authority to enter into a global settlement (the “Global
Settlement”) with respect to certain property (the “Property”) located in Stamford,
Connecticut consisting of a building (the “Building”) and the land appurtenant thereto
(the “Land”).
Stamford Associates, L.P. (“SALP”) leased the Land under a ground lease
from a subsidiary of the General Re Corporation (“Gen Re”) and had a fee title to the
Building (which it had purchased from Gen Re). Another Lehman entity, Stamford Real
Estate Corporation (“SREC”) subleased the Land and leased the Building from SALP,
and then subleased the Land and the Building back to Gen Re. Another Lehman entity,
Stamford Investment Partners (“SIP,” together with SREC and LBHI, the “Lehman
Entities”) provided financing in connection with these transactions. LBHI provided a
guarantee of certain of SREC’s obligations under the above leases and subleases (the
“LBHI Guaranty”) and a related tax indemnity (the “Tax Indemnity”).
Gen Re vacated the Property when its sublease expired on January 31,
2009. Assuming a replacement tenant is not found, SREC will have no source of funding
its obligations to SALP under the master lease, thereby triggering the LBHI Guaranty,
and SALP will have no source of funding to make the debt service payments to SIP under
the Loan Documents when they become due.
3
Lehman Entities negotiated the Global Settlement, pursuant to which the parties agreed
that: (i) SALP would convey its fee interest in the Building and its interests under the
ground lease and the master lease to a newly formed subsidiary of SIP in consideration
for, among other things, the release of the Stamford Entities from all of their obligations
under the Loan Documents, the ground lease, and the master lease; (ii) the Proof of Claim
with respect to the LBHI Guaranty would be allowed as a general unsecured claim
against LBHI in the amount of $45 million solely for the benefit of SPCLC (i.e. to the
exclusion of any individual limited partners who may have been former Lehman
employees); (iii) the Proof of Claim with respect to the Tax Indemnity would be allowed
as a general unsecured claim against LBHI in the amount of $20 million solely for the
benefit of SPCLC (again, to the exclusion of any individual limited partners who may
have been former Lehman employees); (iv) any rights that the Stamford Entities had
under the LBHI Guaranty and the Tax Indemnity would be extinguished; and (v) the
Lehman Entities would provide releases to the Stamford Entities.
(ii) Debtors’ Motion Pursuant to Section 363 of the Bankruptcy Code and
Bankruptcy Rule 6004 for Authorization to Prepay Variable Funding
Trusts [Docket No. 6713]
The Debtors sought authority to prepay certain notes (the “Notes”) issued
by two securitization trusts, Variable Funding Trust 2007-1 (“VFT 2007”) and Variable
Funding Trust 2008-1 (“VFT 2008,” and, together with VFT 2007, the “Trusts”) that
were due to mature on June 30, 2010. The Metropolitan Life Insurance Company
(“MetLife”) was the holder of the Notes, while Lehman Commercial Paper Inc. (“LCPI”)
had the right to receive any residual interest in the Trusts after repayment of the Notes.
VFT 2007 issued the “2007 Notes” that were secured by certain mortgage
loans sold by LCPI to VFT 2007. The Debtors represented that approximately $258.8
million was outstanding under the 2007 Notes. VFT 2008 issued the “2008 Notes” that
were secured by participations in certain corporate loans (together with the mortgage
loans securing the 2007 Notes, the “Collateral”), sold by LCPI to VFT 2008. The
Debtors represented that approximately $134.9 million was outstanding under the 2008
Notes. Additionally, the Debtors represented that the Notes were cross-collateralized and
guaranteed by LBHI.
4
According to the Debtors, the principal and interest payments received by
LCPI on account of the Collateral exceeded the amounts owed to MetLife under the
Notes for the first three quarters of 2009. However, due to the January Rate Adjustment,
a shortfall of approximately $4 to $6 million was created. The Debtors estimated that by
the June 30 maturity date, approximately $10 million will accrue under the 2007 Notes
and $2.7 million will accrue under the 2008 Notes.
Disposition: The Court granted this motion (the Committee represented to the Court
that MetLife recused itself from all Committee deliberations with respect to this
matter.) [Docket No. 7220]
As of the relevant petition dates, LBHI, LCPI and SMBC were parties to a
loan and security agreement (the “Credit Agreement”) pursuant to which SMBC made
loans and extensions of credit to LBHI for the funding of LCPI. LCPI granted SMBC a
security interest in, among other things, certain financial assets (the “Pledged Assets”).
SMBC contended that, under the Credit Agreement, it had the right, upon
any event of default, to (i) dispose of any part of its collateral in any commercially
reasonable manner and (ii) apply all proceeds thereof against LBHI’s obligations (the
“Obligations”). As of January 12, 2010, the principal amount outstanding under the
Credit Agreement was $134,913,621.19.
Earlier in the Chapter 11 Cases, SMBC sought relief from the automatic
stay to proceed with the disposition of its collateral, and the Court, on December 17,
2008, so ordered a stipulation among the Debtors and SMBC granting SMBC adequate
protection [Docket No. 27]. Thereafter, the Court approved a stipulation granting further
adequate protection to SMBC, pursuant to which the Debtors agreed to transfer certain
loans to SMBC [Docket No. 4007].
In accordance with the terms of the prior stipulations, the Debtors have
consulted with SMBC regarding the management of the Pledged Assets. As a result of
such consultation, the Debtors and SMBC (a) determined that it was appropriate for the
Debtors to sell $10 million in principal amount of certain debt (the “TXU Loan”) and
apply the proceeds to reduce the amount of the Obligations, and (b) agreed upon terms
for the transfer to SMBC the principal amount of $40 million of another loan (the
“Altegrity Loan”) in exchange for a further reduction in the Obligations.
5
Pledged Assets at prevailing market prices and pay the net proceeds to SMBC to be
applied to reduce the Obligations.
Disposition: The Court entered this supplemental stipulation. [Docket No. 7221]
(i) Motion for Relief from Stay to Effect Setoff [Docket No. 4963]
6
(“LBSF”) under a swap agreement against a prepetition claim (the “Bond Claim”) that
CalPERS asserted against LBHI on account of certain unsecured bonds issued by LBHI.
Disposition: The Court denied this motion without prejudice. [Docket No. 7049]
(ii) Stipulation, Agreement and Order Granting Limited Relief from the
Automatic Stay [Docket No. 6812]
7
Pursuant to the terms of the Intercreditor Agreement, the Lender provided
LBHI with notice of default and an opportunity to cure or purchase the Senior Loan.
LBHI did not exercise either option. The parties entered into this stipulation in order to
resolve any issues that may arise in connection with LNR’s exercise of its rights and
remedies with respect to the Borrower’s alleged defaults.
Pursuant to the stipulation, the parties agreed that the automatic stay
would be modified solely to (i) permit LNR to exercise the Senior Lender’s rights under
the Senior Loan, including foreclosing on the Senior Collateral and appointing a receiver
to take control of the Property pending a foreclose sale; and (ii) deem permitted and
effective all notices provided by LNR to LBHI on behalf of the Senior Lender and all
actions taken in connection therewith. Further, LNR agreed to provide LBHI with at
least ten days advance notice of any pending foreclosure sale of the Property.
C. Retention of Professionals
Jones Day repeated its previous conflict check and clearance process with
respect to the Additional Matters, and informed the Debtors that it did not represent or
hold any interest adverse to the Debtors or their estates with respect to the Additional
Matters.
Disposition: The Court approved this supplemental application. [Docket No. 7166]
8
The Debtors sought to employ The O’Neil Group (“O’Neil”) is tax
services provider for the filing of tax returns for the 2009 and subsequent filing years.
The Debtors previously employed Huron Consulting Group (“Huron”) to provide the
same services for the 2008 filing year, pursuant to a March 12, 2009 order of the Court
[Docket No. 3072]; however, Huron informed the Debtors that it would no longer be
providing tax services. The Debtors submitted that their tax department did not have the
resources to prepare the necessary returns in-house, and sought to replace Huron’s
services with those of O’Neil.
By an order dated July 2, 2009 (the “Bar Date Order”), the Court
established November 2, 2009 as the deadline (the “Securities Programs Bar Date”) for
filing proofs of claim based on “Lehman Programs Securities.” In accordance with the
Bar Date Order, Salvatore Facella Sensi Della Penna, Franco Mura and Luigi Isola, each
a holder of Lehman Programs Securities and residing outside the United States
9
(collectively, the “Foreign Creditors”), obtained blocking numbers, completed proofs of
claim (each a “Foreign Claim”) and mailed them via first class mail. Each Foreign Claim
was postmarked prior to the Securities Programs Bar Date. According to the Debtors,
however, the Foreign Claims were not delivered to the Debtors’ claims agent (the
“Claims Agent”) until after the Securities Programs Bar Date had passed.
The Debtors asked the Court to extend the time to file the schedules,
statements of financial affairs and related documents (collectively, the “SOFAs”) for LB
Somerset LLC, LB Preferred Somerset LLC, and Merit, LLC (collectively, the “New
Debtors”) through and including February 12, 2010, without prejudice to the New
Debtors’ right to seek additional extensions, for cause, if necessary.
The Debtors asserted that cause existed to further extend the time by
which the New Debtors had to file their SOFAs, citing the relatively short length of
additional time requested, the wide dispersion of information that had to be compiled and
cross-referenced, and the lack of employees with direct knowledge of the New Debtors’
books and records.
F. Miscellaneous
(i) Ex Parte Motion for Leave to File the Examiner’s Report Temporarily
Under Seal [Docket No. 7022]
The Examiner moved ex parte to file the 2,200 page report of his
investigations (the “Report”) under seal (the “Motion to Seal”). In the Motion to Seal,
the Examiner stated that while the Report should be publicly available, he initially
requested that it be filed under seal because the Report contains a substantial amount of
privileged and confidential information (the “Protected Information”) that was obtained
pursuant to protective orders and confidentiality agreements with certain parties-in-
10
interest (the “Protected Parties”). According to the Examiner, the Protected Information
was so extensively “quoted, paraphrased or otherwise divulged” that it was not practical
to file a redacted version of the Report.
LBI had filed a proof of claim (the “LBI Claim”) in the chapter 11 cases
of American Home Mortgage Holdings, Inc. and certain of its affiliates (collectively, the
“AHM Debtors”) pending in the Delaware Court in the amount of $3,956,604.41. The
LBI Claim was based on (i) a prepetition agreement with one of the AHM Debtors and
(ii) LBI’s ownership of certain notes issued by Broadhollow (the “Broadhollow Notes”),
for which one of the AHM Debtors was the sole member, manager and owner.
The Motion filed by the AHM Debtors in the Delaware Court seeks, in
part, authorization to sell Broadhollow and effect a settlement among the AMH Debtors,
the holders of the Broadhollow Notes and other parties. Due to the automatic stay in
effect in the SIPA Proceeding, the prosecution of the Motion with respect to LBI was
stayed. Accordingly, the SIPA Trustee sought entry of a stipulation to agree to the
modification of the automatic stay to allow the AHM Debtors to prosecute the Motion to
the extent that the sales and releases contemplated thereby affect the rights of LBI.
11
B. Executory Contracts
The SIPA Trustee asked the Court to so order a stipulation among LBI,
TPF and Tenaska Capital Management, LLC (“Tenaska”) that provided for the
termination of an engagement letter dated April 3, 2007 (as amended on June 13, 2008,
the “Agreement”) under which TPF retained LBI as its exclusive global placement agent
in connection with the sale of limited partnership interest or other interests in TPF. The
SIPA Trustee determined that it would be in the best interests of LBI and the LBI estate
to terminate the Agreement upon the payment to the SIPA Trustee of a termination fee of
$11,303,337.55, which represented the agreed liquidated balance under the Agreement.
The Borrowers filed for bankruptcy on June 9, 2009, and LBHI is seeking to
enforce the Guaranties on behalf of the lenders, and to recover damages, attorneys fees,
costs, and expenses.
12