Being illiquid means that you don’t have resources available to meet your current obligations. Figuring this out is straightforward: either you can pay your bills or you can’t.
Being insolvent means that you owe more than you own. That too seems straightforward. But while solvency is often discussed as a binary condition — either you are or you aren’t — the reality is more complicated. Read more
Here are the FT Alphaville posts from September 15, 2008.
Have a click through. Busy times!
If you want to explore other days at the height of the crisis, note the format of the URL in bold here: http://ftalphaville.ft.com/2008/09/15/ Just change the date in the address bar on your browser as required. Read more
There’s an oft-quoted number in the debate raging over liquidity in the bond market.*
It is, depending on the week, 75-78 per cent — the amount by which dealer banks’ inventories of corporate bonds are said to have declined since their peak of $235bn in 2007, according to Federal Reserve data. Read more
Frankly we’re bored of this, but:
That question deserves some serious thought, don’t you think? Read more
Lehman Brothers’ estate will ask a judge to allow it to bid $1.3bn for an increase in its stake in Archstone, the apartment company, according to Bloomberg. Equity Residential made a $1.3bn bid last week for Archstone stakes held by Barclays and Bank of America worth 26.5 per cent of the company. Lehman holds 47 per cent, a relic of a $22bn buyout in the last decade. The estate believes that Archstone is worth $1bn more than the valuation put on it by Equity Residential’s offer, although a matching cash counter-bid would not stop Equity Residential grabbing the other 26.5 per cent of the banks’ stake, the WSJ reports.
A court has approved the remnant of Lehman Brothers to exit bankruptcy early next year, allowing pay-outs to creditors to begin soon after, reports Reuters. Lehman has some $65bn of assets under its three-year liquidation plan to meet the $450bn claims of its creditors. Judge James Peck called the bankruptcy the “most impossibly challenging” ever in approving the plan in court, Bloomberg says. Senior bondholders of Lehman will get 21.1 cents on the dollar back under the plan, compared to 16 cents in a rival proposal put together by creditors of Lehman’s affiliates.
The Lehman Brothers estate is on the cusp of appointing a new board of directors, says the WSJ. The seven board members will be tasked with completing the liquidation of Lehman’s remaining assets. Lehman has lacked a board of directors since its September 2008 collapse. Liquidation of its assets may take another three to five years, with a stake in the apartment company Archstone providing the latest flashpoint for the Lehman estate’s bid to maximise value. The estate could scupper a plan to sell Archstone to Equity Residential because of concerns about its valuation, the FT reports.
Breaking pre-market news on Wednesday,
- Lehman’s joint chapter 11 plan gets support from creditors holding over $160bn in claims – Reuters. Read more
Three years after Lehman Brothers declared the biggest corporate bankruptcy in history, the defunct bank is approaching the end of the process as additional creditors voice their support for a final pay-out plan, reports the FT. The Lehman estate said on Thursday that Bank of America and Merrill Lynch had agreed to support a compromise proposal to settle how Lehman would repay its derivatives counterparties for positions that were cancelled during its failure in September 2008. As part of the agreement, BofA, which acquired Merrill in 2008, will drop its appeal of an earlier court decision forcing it to pay $500m to Lehman, related to bank accounts seized just before Lehman’s bankruptcy. BofA also would reduce its derivatives claims by $4bn.
Dick Fuld, the former chief executive of Lehman Brothers, and 13 others have agreed to pay $90m to settle a shareholder lawsuit alleging the former executives and board members misled investors about the bank’s financial health before its bankruptcy filing, the FT reports. In a motion filed with the bankruptcy court, the defendants have asked the judge for permission to use insurance coverage to pay for the class-action settlement. The judge overseeing the bankruptcy has agreed nine previous times to allow the defendants to dip into directors’ and officers’ insurance to settle smaller lawsuits and pay other fees. If approved, Mr Fuld and others will not personally bear any of the costs. The settlement, which was revealed in filings made in US bankruptcy court in New York, does not lift the regulatory scrutiny hanging over the brokerage firm’s executives.
If there’s a chart to encapsulate Thursday’s market panic:
A US bankruptcy court on Wednesday approved a deal to securitise loans from a $5.3bn portfolio made by the former investment bank Lehman Brothers, in a sign both of the quiet revival and the changed nature of the market for complex financial products, the FT reports. WCAS Fraser Sullivan is to take over management of the assets and will generate cash for creditors by selling a series of collateralised loan obligations – instruments that pool assets, which are then sliced into tranches of varying risk and return. The investment management firm expects to securitise at least $1bn of loans within the next year. In each sale, the Lehman estate will retain the equity tranche, the riskiest slice of a CLO first subject to any losses. The Lehman deal is “idiosyncratic”, said Steven Miller, managing director of S&P LCD, but “it is part of a broader pattern of consolidation”. The CLO industry has been consolidating since its heyday during the buy-out boom of 2006 and 2007, when new issuance totalled nearly $100bn in the two consecutive years. CLOs buy leveraged loans, which, along with junk bonds, are the main financing tools for leveraged buy-outs.
A US bankruptcy court on Wednesday approved a deal to securitise loans from a $5.3bn portfolio made by the former investment bank Lehman Brothers, in a sign both of the quiet revival and the changed nature of the market for complex financial products, the FT reports. WCAS Fraser Sullivan is to take over management of the assets and will generate cash for creditors by selling a series of collateralised loan obligations – instruments that pool assets, which are then sliced into tranches of varying risk and return. The investment management firm expects to securitise at least $1bn of loans within the next year. In each sale, the Lehman estate will retain the equity tranche, the riskiest slice of a CLO first subject to any losses. The Lehman deal is “idiosyncratic”, said Steven Miller, managing director of S&P LCD, but “it is part of a broader pattern of consolidation”.
A US bankruptcy court has approved a deal on Wednesday to securitise debt from a $5.3bn portfolio of loans made by the former investment bank Lehman Brothers, in a sign both of the quiet revival and the changed nature of the market for complex financial products, reports the FT. WCAS Fraser Sullivan is to take over management of the assets and will generate cash for creditors by selling a series of collateralised loan obligations – instruments that pool assets, which are then sliced into tranches of varying risk and return.
The Lehman Brothers estate is pushing ahead with plans to sell or list Archstone, the apartment company that it took private for $22bn near the zenith of the property boom, even as market ructions complicate discussions about how to proceed with Bank of America and Barclays, owners of sizeable stakes. People familiar with the matter told the FT the banks were working on documents for an initial public offering, which could be filed by the end of the month. JPMorgan Chase has been retained to assist with a possible float. The group has also started discussions about a potential sale of Archstone, which could be valued at as much as $20bn including debt, or just a stake, with a select group of potential buyers, those people said.
Lehman Brothers Holdings said it settled $20bn of intercompany claims with liquidators for Lehman Hong Kong, Bloomberg reports. The agreement, which is subject to court approval in the US and Hong Kong, is part of Lehman’s efforts to gather support for a $65bn liquidation plan. It said last month that creditors holding more than $100bn in claims signed their support for the company’s latest payout plan, which allots more money to a group including Goldman Sachs and less to bondholders including Paulson & Co.
It’s been a day of important Lehman Brothers legal verdicts.
On Wednesday morning in New York, the US District Court in Manhattan rejected a move by former Lehman Brothers executives and auditors to dismiss litigation brought by investors who allege they were misled by the bank’s Repo 105 practices. Read more
That’s a big deal for the structured finance world, though you might not know it. Read more
Breaking pre-market news on Monday,
- Glencore to acquire 70 per cent stake in Mina Justa Project for $475m – statement. Read more
Paulson & Co has made more than $550m from recoveries in the value of bonds it bought in Lehman Brothers after its default, the FT reports. The fund made more than 2,000 trades buying $6.8bn of face-value debt for $890m in the two and a half years after September 15, 2008. Under Lehman’s final bankruptcy agreement, owners of bonds will receive 21.1 cents on the dollar, versus the 17.4 cents proposed initially by the Lehman estate. Mr Paulson’s funds hold the bonds at an average of 7.3 cents on the dollar. If Paulson can gain recoveries of 26 cents — the market price based on the view that Lehman’s assets will rise in value — the profit on the position will increase to $780m.
Paulson & Co, the hedge fund that made billions from betting on a collapse in mortgage-backed securities during the financial crisis, has made more than $550m from a recovery in the value of bonds it bought in failed investment bank Lehman Brothers. The world’s third-largest hedge fund has made a profit of $554m before legal fees, on more than 2,000 trades in Lehman bonds that started the day the investment bank filed for bankruptcy in 2008, according to an analysis of court documents by the FT. The profit will be realised by a settlement between warring creditors to the largest corporate failure in history, a deal partly driven by hard bargaining by Paulson & Co and allies.
It’s an analogy already made by many commentators on Thursday.
And picked up with some aplomb on Friday by BNP Paribas’ Mehernosh Engineer: Read more
The Lehman Brothers bankruptcy may be making it cheaper to buy default protection on US municipal bonds, the FT reports. The cost of CDS on “munis” has fallen sharply this year, a sign of a lower perceived risk that US states and cities will struggle to pay their debts. The MCDX, the municipal CDS index, this year has dropped by more than 30 per cent. CDSs on individual states such as California and Texas have fallen more than 40 per cent. But a 2007 deal between Lehman and Warren Buffett was confusing the situation by potentially dumping a large supply on the CDS market. The WSJ notes that while the exact timing of Lehman’s sale is unclear, some traders and investors say the mere prospect of such volume hitting the market has been a factor in driving down swap prices over the past month.
A group of Lehman Brothers creditors including Paulson & Co has come under fire from rivals for a bid to have trades disclosed, says Bloomberg. Paulson’s creditor group is pressing for rivals to its liquidation plan to disclose how much they paid for Lehman debt before voting on its liquidation plan. Citigroup and Bank of America called the move a ‘fishing expedition’ and an ‘attempt to intimidate parties’ respectively. A liquidation plan led by Goldman would see investors repaid at 16 cents in the dollar whereas the Paulson plan envisages around 25 cents.
Bill Gross lost billions of dollars after loading up on debt issued by Lehman Brothers in the years ahead of its bankruptcy in 2008, the WSJ says. Pimco’s $3.4bn-plus losses were revealed in investment disclosures filed to Lehman’s bankruptcy court. The fund bought at face value before the crisis, leaving it with $4.5bn in holdings when Lehman collapsed and the bonds’ prices fell to 6 cents on the dollar. Pimco crystallised the losses soon afterward, during a year that saw the fund post a 4.32 per cent return on bets that Treasury prices would rise. The Lehman bonds have since recovered to around 25 cents as creditors haggle over how to liquidate the bank.
A group of hedge funds and pension funds opposing the Lehman estate’s bankruptcy plan has asked US bankruptcy court to force many Lehman Brothers creditors – including banks such as Goldman Sachs – to reveal their current holdings of the defunct investment bank’s debts, reports the FT. The so-called Ad Hoc group of creditors, including hedge fund Paulson & Co, bond fund Pimco, and the Calpers retirement fund, were themselves compelled by the court, at the behest of Lehman, to disclose their holdings in March after filing their own plan of organisation. In court filings on Monday night, the Ad Hoc creditors argued the banks and hedge funds may have interests not known to the court, and said some entities may be using “a multitude of attorneys” to hide the fact they are coordinating their efforts.
Paulson & Co could end up making profits of between $350m and $726m on its purchases of distressed Lehman Brothers debt, if a bankruptcy plan going through courts is approved, says the WSJ. Paulson has bought $7bn of Lehman debt since 2008 at an average price of 13 cents on the dollar; one bankruptcy plan supported by Paulson would return 25 cents on the dollar to investors. While the higher recovery values will also help public pension funds who bought Lehman bonds, funds that traded with its subsidiaries will see their recoveries on claims reduced accordingly. Elsewhere, a federal court has approved Barclays to receive $1.1bn from Lehman’s trustee, but some $2bn in assets are still in dispute, the FT says.
A three-way battle over the remnants of Lehman Brothers Holdings is coming to a head, as the defunct investment bank’s estate fights with top hedge funds and Lehman’s former rival Goldman Sachs over how to divide $61bn in assets, reports the WSJ. In one corner is hedge fund manager John Paulson, who has been snapping up bargain-priced debt of Lehman and is now one of its biggest creditors. His firm, Paulson & Co, is leading a group of hedge funds pushing one proposal for unwinding the failed firm. In another is Goldman, which on Monday led a group of banks in presenting a plan that would pay a larger share of proceeds to them. Both oppose a previous proposal filed to the bankruptcy court by Lehman’s estate manager. The battle’s outcome could set a precedent on dealing with creditors of global companies after they fall into bankruptcy protection.
A new faction of Lehman Brothers creditors, including global banks and hedge funds, have signalled their intention to file a competing pay-out plan, should negotiations with the bankrupt investment bank break down, the FT reports. Lehman’s bankruptcy managers, the restructuring firm Alvarez & Marsal, presented a plan earlier this year to pay out $60bn against roughly $320bn in claims after selling assets such as the Archstone property group and subsidiary depositary banks. The plan reduced the pay-outs to creditors who traded derivatives with Lehman, such as Goldman Sachs, Credit Suisse and Deutsche Bank, in favour of paying more to investment funds that bought Lehman bonds in the months before its collapse in September 2008. A group of those bondholders, including Pimco, Paulson & Co and Calpers, last year filed a competing plan that would pay out even less to bank creditors.
Federal investigators have conceded that Lehman Brothers executives won’t likely face charges for an accounting tactic that obscured the Wall Street firm’s true financial condition, the Wall Street Journal reports. However Lehman’s auditor, Ernst & Young, has already been hauled into court. The company is fighting fraud charges filed in December by the New York attorney general for, among other things, allegedly failing to adequately follow up on a whistleblower’s claim that Lehman was misstating the value and size of its assets.