Lehman liquidation datapoint of the day

By Felix Salmon
January 13, 2010
Linda Sandler reports:

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Linda Sandler reports:

Fourteen months into the bankruptcy, Lehman had paid its bankruptcy advisers $533.5 million, with $202.4 million going to Alvarez & Marsal.

The Marsal in Alvarez & Marsal has now decided he wants to become a fixed-income speculator, as well as a multi-millionaire liquidator:

Marsal, acting as Lehman’s chief executive officer, wants to buy $3.5 billion in loans and mortgages, according to court filings. He proposes to pay $1.4 billion for the debt. A bankruptcy judge will review the proposal today in New York.

Any debt trading these days at 40 cents on the dollar is extremely impaired, and it’s not at all obvious why one bankrupt entity should be putting billions of its creditors’ dollars into the distressed-loan market. Surely the creditors themselves are more than capable of doing that on their own, should they so desire.

On the other hand, the choice isn’t really between investing the money in distressed debt and handing it straight back to creditors: the creditors are going to have to wait a very long time to get any money at all even if the money isn’t invested. Marsal seems to have a time horizon of “three to five years” before he expects to actually start giving back money, and doesn’t seem remotely shy about making directional bets in asset markets. After all, if you’re being paid hundreds of millions of dollars a year, you must be very good at what you do, right?


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Have you considered that he might be buying back Lehman debt?

Posted by Publius | Report as abusive

You have to understand that LBHI and certain affiliates (“Lehman US”) were entering into this transaction with Lehman Brothers Bankhaus AG (“Bankhaus”), a German affiliate in a German bankruptcy. There were significant disputes regarding the entity’s ownership rights regarding these loans. Basically, in some cases, Bankhaus had the economic interest in the loan and, in other cases, Bankhaus may only be entitled to an unsecured claim against Lehman US. This is a big factor in why the amount paid for the loans was so low. In addition, Bankhaus received claims in excess of $1 billion against Lehman US.

Posted by bklawyer | Report as abusive