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Lehman Brothers bankruptcy, New York - Timely updates

 

20 September 2008

The following is a current summary of events underway in Lehman Brothers' bankruptcy.  

We are attending all hearings to keep you updated on current events. This summary is intended as a quick reference as to key highlights from events at the court and does not constitute legal advice.

Please contact one of the people listed at the end of this update or your regular Allen & Overy adviser if you have specific issues.

Saturday, September 20th, 2008

  • Early Morning
  • Sale Hearing Regarding Sale of Assets to Barclays: The Bankruptcy Court entered the Sale Order approving the proposed sale of certain assets to Barclays pursuant to the Asset Purchase Agreement free and clear of liens and other interests. The Purchased Assets are set forth in the Asset Purchase Agreement subject to modification and clarification in two amendments that were discussed in open court, but not yet filed on the public record. The Purchased Assets technically do not include most of Lehman's subsidiaries, however, the employees and infrastructure of many subsidiaries will be transferred to Barclays. The sale is expected to close over the weekend, with the parties and regulators working to restore access to customer accounts as soon as possible. Certain contracts with the Debtors and Lehman Brothers Inc (LBI) have been identified for assumption by Barclays under the Asset Purchase Agreement, and the Debtors have asserted cure amounts for those contracts on their website www.Lehman-Docket.com. Objections to the Debtors' alleged cure amounts (originally due by September 19) are now due by October 3, 2008.

During the sale hearing, which commenced at 4:00pm on Friday and ended in the early morning hours on Saturday, Judge Peck heard from Lehman Brothers Holdings Inc (LBHI), LBI, Barclays, the SIPC Trustee, various regulators, and numerous parties who objected to the sale. The objections generally concerned timing and due process, whether LBHI and LBI have investigated every possible alternative, and the fairness of the purchase price. Additionally, a few parties made allegations regarding pre-bankruptcy cash management transactions. Unless resolved by revisions to the Sale Order, such objections were withdrawn or overruled. The Bankruptcy Court also entered the order in the SIPA proceeding, which in effect recognizes and makes applicable the Sale Order in the SIPA action.

Please contact us if you would like more information about the proceedings or any particular objections filed.

Copies of the Asset Purchase Agreement, SIPC Commencement, Sale Order and SIPC Reference to Sale Order are available upon request.

Friday, September 19th, 2008

  • Afternoon
  • SIPC Action Against LBI: SIPC commenced an action under SIPA against LBI, the broker-dealer, in the United States District Court for the Southern District of New York (Case No. 08-CIV-8119). District Judge Lynch signed the attached Order Commencing Liquidation of LBI and thereby appointed James W. Giddens, as SIPC Trustee, to oversee the orderly transfer of LBI customer accounts and property. The District Court action was then removed and transferred to the Bankruptcy Court before Bankruptcy Judge Peck who will oversee any further matters in that action, which is styled as an adversary proceeding (Adv. Proc. No. 08-1420) in the Bankruptcy Court. To be clear, LBI is not a debtor in a separate case under chapter 7 or 11 of the Bankruptcy Code. The SIPC Trustee also has authority to complete settlement of pending transactions up to 6:00pm on September 23, 2008. With a few notable exceptions, the order includes the automatic stay that prohibits certain actions against LBI or its property. Section VIII(B) of the order, for example, affirms that the stay does not apply to the exercise of contractual rights under certain protected financial contracts, subject to Section VII which includes a stay (for 21-days, or such other time the Bankruptcy Court may order) against the disposition or foreclosure of "securities collateral" without the prior written consent of SIPC and the SIPC Trustee.

Please contact us if you have any questions about your specific circumstances.

Thursday, September 18th, 2008

  • Afternoon
  • SIPC issues press release that on "Friday, September 19, 2008, SIPC will file a proceeding placing LBI in liquidation under the Securities Investor Protection Act (SIPA)." Click here for a link to the SIPC press release.
  • Four objections to the sale motion have been filed.
  • Morning
  • The sale and DIP orders were entered.
  • The sale hearing is scheduled for 4:00pm Friday, September 19th.
  • The final DIP hearing is scheduled for Thursday, October 2nd at 3:00pm.

Wednesday, September 17th, 2008

  • Evening
  • The Court approved the interim DIP loan for USD200 million of the full USD450 million facility, secured by LBHI's equity in Neuberger Berman. The DIP lender is Barclays.
  • Afternoon
  • Bankruptcy Court Judge Peck held hearing regarding sale procedures and DIP.
  • Sale procedures order entered. The Court-approved bid procedures include:
  • USD100 million break up fee;
  • up to USD25 million expense reimbursement;
  • USD50 million initial bid increment;
  • subsequent bids USD100million; and
  • objections to the sale or counter bids can be lodged up to the actual sale hearing with some notice to the Debtors.
  • LBI is a Seller (notwithstanding the fact that it isn't a debtor). Debtors propose having a joint Chapter 11 hearing and SIPC hearing.
  • Objections to sale procedures were raised by the creditors' committee (represented by Milbank) and an ad hoc committee of bondholders.
  • Morning
  • Sale procedures motion and DIP motion filed. Appears LBI is expected to commence its proceeding under SIPA shortly before the sale hearing.
  • Proposed sale procedures lead to the sale of substantially all operations of the broker-dealer LBI, Lehman "worldwide headquarters", and two data centers to Barclays, subject to higher and better offers. Notably excluded are the IMD business (Neuberger Berman and private equity real estate funds) and commercial real estate assets, Lehman Commercial Paper Inc and the non-U.S. and non-Canadian operations of LBHI and LBI. Sale procedures motion also confirmed that Lehman "worldwide headquarters" at 745 Seventh Avenue are owned by LB 745 LLC (and are being sold to Barclays Capital).

Tuesday, September 16th, 2008

  • Evening
  • LB 745 LLC filed for Chapter 11 at 11:43pm - case number is 08-13600. The Debtors filed a motion to jointly administer this case with the main case filed Monday, and to have the orders entered in the case yesterday applied to this new debtor.
  • Afternoon
  • Hearing in Lehman's Chapter 11 case dealt with procedural matters, including, among others:
  • an order confirming the automatic stay (to provide notice to creditors outside the U.S. that are unfamiliar with the self-executing nature of the stay and its application); and
  • a "comfort order" for JPMorgan Chase as clearing agent confirming the status of clearing advances occurring post petition, appointing Epiq Bankruptcy Solutions, LLC as claims agent, and extending Lehman's time to file schedules for 45 days. Docket available at www.bsillc.com.

Monday, September 15th

  • Morning
  • Lehman Brothers Holdings Inc filed under Chapter 11 of the Bankruptcy Code.
  • The following Lehman entities filed in Europe:
    • Lehman Brothers Holdings PLC
    • Lehman Brothers International (Europe)
    • LB UK RE Holdings Ltd
    • Lehman Brothers Ltd
  • The following Lehman entities have been placed into civil rehabilitation proceedings in Japan:
    • Lehman Brothers Holdings Japan Inc
    • Lehman Brothers Japan Inc
  • There are other proceedings for Lehman entities in Hong Kong. Provisional liquidators have been appointed for Lehman Brothers Securities Asia Limited and Lehman Brothers Futures Asia Ltd.
 

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