Last August, when it seemed the financial world was teetering on the brink of collapse, FT Alphaville wondered whether commercial real estate and CMBS would ultimately lead to the demise of Lehman Brothers.
At the time, the bank was struggling to sell a $40bn portfolio of the stuff in an attempt to shore up its balance sheet. The investment bank was even contemplating setting up a new company “funded by outside investors to buy some of its mortgage assets, aiming to dispel concern the firm faces crippling losses,” Bloomberg reported.
In the end, it wasn’t only betting on commercial (and residential) real estate that caused Lehman’s fall, but the $7bn in writedowns the bank reported on its mortgage book shortly before its collapse certainly didn’t help.
Which is why this press release from Standard & Poor’s caught our eye last week (emphasis ours):
S&P Is Monitoring Impact Of Legal Fees Related To Lehman Bankruptcy On Rated U.S. CMBS
NEW YORK Aug. 11, 2009–Standard & Poor’s Ratings Services stated today that it has identified eight investment-grade rated commercial mortgage-backed securities (CMBS) classes from nine transactions that have experienced interest shortfalls associated with Lehman Bros.’ Sept. 25, 2008, bankruptcy filing. The shortfalls were reported on the June and July 2009 remittance reports. Lehman Bros. Inc. affiliates had served as a lead manager or co-manager, originator, or loan seller for these transactions (see list below, which includes three non-investment-grade classes).
Standard & Poor’s learned of the expenses as part of its ongoing rating monitoring efforts. LaSalle Global Trust Services (LaSalle), the trustee for all of the transactions, has indicated that the expenses were related to the Lehman bankruptcy. Discussions with LaSalle indicated that the costs were legal expenses LaSalle incurred when it filed a proof of claim on behalf of each trust. It is our understanding that the proofs of claim were filed with the bankruptcy court to preserve any current or future claims the respective trusts may have in regards to the Lehman estate. At this time, it is our understanding that the filings were done as a precaution and LaSalle does not expect significant additional legal fees to be incurred.
LaSalle stated that it expects the legal expenses to range from $4,000-$5,000 for each trust, and believes they will be non-recurring. The expenses may be incurred by all trusts administered by LaSalle that have Lehman Bros. affiliates that served in a lead manager, co-manager, originator, or loan seller role. The 12 classes listed below do not have any subordinate debt or reserves to absorb the shortfalls, and the lowest-rated tranches in each deal were affected by the shortfalls. The expenses ranged from $259 to $1,882, which equates to 0.001% to 0.075% of the outstanding trust balances.
Even though the shortfalls are not likely to be recovered by investors, we do not believe that rating actions are necessary at this time due to the unique circumstances that caused the expenses and resulting shortfalls. At this time, we consider the shortfalls isolated events, economically diminutive, and do not imply any weakening of the credit strength of the collateral. We will continue to monitor the situation, however, and take actions as needed.
A one-off event, perhaps, in a small corner of the CMBS market, but further evidence that despite claims to contrary, the bank’s collapse did matter, and markets are still feeling the effects.
Related links:
Lehman to get $459,000 payout over CMBS bond – Reuters
Fed extends TALF to aid commercial property – statement, via Reuters
Restructuring structured products, an update – FT Alphavile