UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 30, 2021
LEHMAN BROTHERS HOLDINGS INC. PLAN TRUST
(Exact name of registrant as specified in its charter)
Delaware | 1-9466 | 30-6315144 | ||
(State or other jurisdiction | (Commission | (IRS Employer | ||
Of incorporation) | File Number) | Identification No.) |
110 East 42nd Street
New York, New York
10017
(Address of Principal Executive Offices) (Zip Code)
Registrants telephone number, including area code: (646) 285-9000
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
Not Applicable | Not Applicable | Not Applicable |
Indicate by the check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
ITEM 7.01 | Regulation FD Disclosure. |
As previously disclosed, on September 15, 2008, Lehman Brothers Holdings Inc. (LBHI) filed a voluntary petition for relief under Chapter 11 of the United States Code in the United States Bankruptcy Court for the Southern District of New York (the Bankruptcy Court). Together with the Chapter 11 cases thereafter filed by certain subsidiaries (collectively with LBHI, the Debtors), the cases are being jointly administered under the case caption In re Lehman Brothers Holdings Inc., et. al., Case Number 08-13555 (the Chapter 11 Proceeding) pursuant to Rule 1015(b) of the Federal Rules of Bankruptcy Procedure. On March 6, 2012, the Modified Third Amended Joint Chapter 11 Plan of Lehman Brothers Holdings Inc. and its Affiliated Debtors (the Plan) became effective.
As contemplated under the Plan, on December 30, 2021, LBHI, the Plan Administrator, filed the Quarterly Financial Report as of October 7, 2021, which includes Balance Sheets, and Cash Flow Estimates (collectively, the Quarterly Financial Report) of LBHI and Debtor-Controlled Entities (collectively, the Company) with the Bankruptcy Court. A copy of the court filing is attached hereto as Exhibit 99.1 to this Current Report on Form 8-K.
Limitation on Incorporation by Reference
In accordance with General Instruction B.2 of Form 8-K, the information in this Item 7.01 shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the Exchange Act), or otherwise subject to the liabilities of that section, nor shall such information be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such a filing.
Cautionary Statements Regarding Financial and Operating Data
The Company cautions the reader not to place undue reliance upon the information contained in the Quarterly Financial Report, as it is not prepared for the purpose of providing the basis for an investment decision directly or indirectly relating to the Company or any of its securities. The Quarterly Financial Report is not prepared in accordance with U.S. generally accepted accounting principles, is not audited or reviewed by independent accountants, will not be subject to audit or review by external auditors at any time in the future, is in a format consistent with applicable bankruptcy laws, and is subject to future adjustments and reconciliations. There can be no assurances that the Quarterly Financial Report is accurate or complete. The Quarterly Financial Report contains a further description of limitations on the information contained therein. The Quarterly Financial Report also contains information which might not be indicative of the Companys financial condition. Results set forth in the Quarterly Financial Report should not be viewed as indicative of future results.
Cautionary Statement Regarding Forward-Looking Statements
This Current Report on Form 8-K and Exhibit 99.1 hereto may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the Companys financial condition, results of operations, and business that is not historical information. Forward-looking statements reflect the Companys current views with respect to future events as well as various estimates, assumptions and comparisons based on available information up to the date of this report, many of which are subject to risks and uncertainties. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including all statements regarding information regarding the intent, belief or current expectation of the Company and members of its management. The words believe, expect, plan, intend, estimate, or anticipate and similar
expressions, as well as future or conditional verbs such as will, should, would, and could, often identify forward-looking statements. These statements speak only as of the date hereof and involve known and unknown risks, uncertainties and other factors, including factors which are outside the Companys control, which may cause the Companys actual condition, results, performance or achievements to be materially different from any future condition, results, performance or achievements expressed or implied by these forward-looking statements. Such factors include, without limitation, the potential adverse impact of the Chapter 11 Proceeding on the Companys liquidity or results of operations. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise, but reserves the right to do so. Readers of this report should not place undue reliance on these forward-looking statements.
The Companys informational filings with the Bankruptcy Court, including the Quarterly Financial Report included in Exhibit 99.1, are available to the public at the office of the Clerk of the Bankruptcy Court, Alexander Hamilton Custom House, One Bowling Green, New York, New York 10004-1408. Such informational filings may be available electronically, for a fee, through the Bankruptcy Courts Internet world wide web site (www.nysb.uscourts.gov), and/or free of cost, at a world wide web site maintained by the Companys Bankruptcy Court-approved noticing agent (www.lehman-docket.com).
ITEM 9.01 | Financial Statements and Exhibits. |
(d) | Exhibits |
99.1 | Quarterly Financial Report as of October 7, 2021 which includes Balance Sheets, and Cash Flow Estimates of Lehman Brothers Holdings Inc. and Debtor-Controlled Entities |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, Lehman Brothers Holdings Inc. Plan Trust has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
LEHMAN BROTHERS HOLDINGS INC. PLAN TRUST | ||||||
By Lehman Brothers Holdings Inc. as Plan Administrator | ||||||
Date: December 30, 2021 | By: | /s/ Kristine Dickson | ||||
Name: | Kristine Dickson | |||||
Title: | Chief Financial Officer |
Exhibit 99.1
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
In re:
|
Chapter 11 Case No. | |||
Lehman Brothers Holdings Inc., et al., | 08-13555 | |||
Jointly Administered | ||||
Debtors. |
QUARTERLY FINANCIAL REPORT
AS OF OCTOBER 7, 2021
DEBTORS ADDRESS: | LEHMAN BROTHERS HOLDINGS INC. | |
c/o KRISTINE DICKSON CHIEF FINANCIAL OFFICER | ||
110 EAST 42ND STREET | ||
SUITE 820 | ||
NEW YORK, NY 10017 | ||
DEBTORS ATTORNEYS: | WEIL, GOTSHAL & MANGES LLP | |
c/o JACQUELINE MARCUS, GARRETT A. FAIL | ||
767 FIFTH AVENUE | ||
NEW YORK, NY 10153 | ||
REPORT PREPARER: | LEHMAN BROTHERS HOLDINGS INC., AS PLAN ADMINISTRATOR |
Date: December 30, 2021 |
Quarterly Financial Report as of October 7, 2021 (Unaudited)
Table of Contents
I. |
Schedule of Debtors | 3 | ||||
II. |
Cash Flow Estimates | 4 | ||||
III. |
Notes to the Cash Flow Estimates | 6 | ||||
Note 1 - Basis of Presentation | 6 | |||||
Note 2 - Other Receipts | 9 | |||||
Note 3 - Due from/to Non-Controlled Affiliates | 10 | |||||
Note 4 - Due from/to LBHI and LBHI-Controlled Entities | 13 | |||||
Note 5 - Disputed Claims | 14 | |||||
Note 6 - Legal Proceedings | 15 | |||||
Note 7 - Taxes Payable | 19 | |||||
Note 8 - Subsequent Events | 20 | |||||
IV. |
Balance Sheets | 21 |
QUESTIONS
The Company has established an email address to receive questions from readers regarding this presentation and its other financial disclosures. The Company plans to review questions received, and for those subjects which the Company determines a response would not (i) violate a confidentiality provision, (ii) place the Company in a competitive or negotiation disadvantage, or (iii) be unduly burdensome relative to the value of information requested, the Company shall endeavor to post a response on the website listed below (maintaining the anonymity of the originators of the questions). The Company assumes no obligation to respond to email inquiries.
Please email questions, with document references as relevant, to:
QUESTIONS@lehmanholdings.com
The Companys previously posted responses can be found on the Epiq website maintained for the Company:
www.lehman-docket.com under the Key Documents tab and the Responses to Questions Submitted category
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Quarterly Financial Report as of October 7, 2021 (Unaudited)
I. Schedule of Debtors
The twenty three entities listed below (the Debtors) filed for bankruptcy in the United States Bankruptcy Court for the Southern District of New York (the Bankruptcy Court) on the dates indicated below. On December 6, 2011, the Bankruptcy Court confirmed the Modified Third Amended Joint Chapter 11 Plan of Lehman Brothers Holdings Inc. and its Affiliated Debtors (the Plan). On March 6, 2012, the Effective Date (as defined in the Plan) occurred. As of the date hereof, the following Debtors chapter 11 case remains open:
Case No. | Date Filed (Commencement Date) | |||||
Lehman Brothers Holdings Inc. (LBHI) |
08-13555 | 09/15/2008 |
The following Debtors chapter 11 cases were closed pursuant to final decrees entered by the Bankruptcy Court (Docket No. 51920, No. 54163, No. 58257, No. 59472, No. 60623 and No. 61162):
Case No. | Date Filed | Date Closed | ||||||||||
LB 745 LLC |
08-13600 | 09/16/2008 | 01/28/2016 | |||||||||
PAMI Statler Arms LLC |
08-13664 | 09/23/2008 | 01/28/2016 | |||||||||
CES Aviation LLC |
08-13905 | 10/05/2008 | 01/28/2016 | |||||||||
CES Aviation V LLC |
08-13906 | 10/05/2008 | 01/28/2016 | |||||||||
CES Aviation IX LLC |
08-13907 | 10/05/2008 | 01/28/2016 | |||||||||
LB 2080 Kalakaua Owners LLC |
09-12516 | 04/23/2009 | 01/28/2016 | |||||||||
LB Somerset LLC |
09-17503 | 12/22/2009 | 01/28/2016 | |||||||||
LB Preferred Somerset LLC |
09-17505 | 12/22/2009 | 01/28/2016 | |||||||||
East Dover Limited |
08-13908 | 10/05/2008 | 12/15/2016 | |||||||||
Luxembourg Residential Properties Loan Finance S.a.r.l. |
09-10108 | 01/07/2009 | 12/15/2016 | |||||||||
Merit LLC |
09-17331 | 12/14/2009 | 12/15/2016 | |||||||||
Lehman Brothers Derivative Products Inc. (LBDP) |
08-13899 | 10/05/2008 | 06/14/2018 | |||||||||
Lehman Brothers Financial Products Inc. (LBFP) |
08-13902 | 10/05/2008 | 06/14/2018 | |||||||||
Lehman Scottish Finance L.P. |
08-13904 | 10/05/2008 | 06/14/2018 | |||||||||
LB Rose Ranch LLC |
09-10560 | 02/09/2009 | 06/14/2018 | |||||||||
Lehman Brothers Commodity Services Inc. (LBCS) |
08-13902 | 10/03/2008 | 02/11/2019 | |||||||||
Lehman Brothers Commercial Corporation (LBCC) |
08-13901 | 10/05/2008 | 02/11/2019 | |||||||||
Structured Asset Securities Corporation |
09-10558 | 02/09/2009 | 02/11/2019 | |||||||||
Lehman Brothers OTC Derivatives Inc. (LOTC) |
08-13893 | 10/03/2008 | 05/04/2020 | |||||||||
Lehman Brothers Commercial Paper Inc. (LCPI) |
08-13900 | 10/05/2008 | 05/04/2020 | |||||||||
BNC Mortgage LLC |
09-10137 | 01/09/2009 | 05/04/2020 | |||||||||
Lehman Brothers Special Financing Inc. (LBSF) |
08-13888 | 10/03/2008 | 07/01/2021 |
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Page 3 |
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Quarterly Financial Report as of October 7, 2021 (Unaudited)
II. Cash Flow Estimates
Lehman Brothers Holdings Inc. & LBHI-Controlled Entities
($ in millions) | As of 6/30/21 |
Cash Activity 7/1/21 - 10/7/21 |
Estimate Changes |
Transfers, Reclassifications, Adjustments |
As of 10/7/21 |
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CASH AND INVESTMENTS |
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Reserves for Claims |
$ | 32 | $ | (13 | ) | $ | (0 | ) | $ | | 19 | |||||||||||||
Reserves for Operating Expenses, Incentive Fees, and Other |
113 | (22 | ) | 9 | | 100 | ||||||||||||||||||
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Total Cash & Investments - Restricted |
145 | (35 | ) | 9 | | 119 | ||||||||||||||||||
Total Cash & Investments - Unrestricted |
117 | (41 | ) | (9 | ) | | 67 | |||||||||||||||||
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TOTAL CASH AND INVESTMENTS [A] |
$ | 262 | $ | (76 | ) | $ | | $ | | 186 | ||||||||||||||
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CASH FLOW ESTIMATES |
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Net Receipts |
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Financial Instruments |
$ | 26 | $ | (9 | ) | $ | 6 | $ | | 23 | ||||||||||||||
Other |
Note 2 | 42 | (13 | ) | (1 | ) | 14 | 41 | ||||||||||||||||
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Sub-Total - Net Receipts |
68 | (22 | ) | 4 | 14 | 65 | ||||||||||||||||||
Recoveries From Non-Controlled Affiliates |
Note 3 | |||||||||||||||||||||||
Europe (a) |
890 | (23 | ) | (570 | ) | (14 | ) | 282 | ||||||||||||||||
Asia |
39 | (6 | ) | (1 | ) | | 32 | |||||||||||||||||
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Sub-Total - Recoveries From Non-Controlled Affiliates |
929 | (29 | ) | (571 | ) | (14 | ) | 314 | ||||||||||||||||
Operating Expenses and Incentive Fees |
(110 | ) | 6 | (8 | ) | | (112 | ) | ||||||||||||||||
Estimated Taxes Payable |
Note 7 | (23 | ) | 5 | 1 | | (17 | ) | ||||||||||||||||
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TOTAL CASH FLOW FROM OPERATIONS + OTHER RECEIPTS [B] |
$ | 864 | $ | (41 | ) | $ | (574 | ) | $ | | 249 | |||||||||||||
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OTHER ADJUSTMENTS |
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(Less): Cash held for the benefit of third parties |
$ | (15 | ) | $ | 11 | (1 | ) | $ | | (5 | ) | |||||||||||||
(Less): October 2021 Voluntary Final Distribution |
(8 | ) | 8 | | | | ||||||||||||||||||
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TOTAL OTHER ADJUSTMENTS [C] |
$ | (23 | ) | $ | 19 | $ | (1 | ) | $ | | (5 | ) | ||||||||||||
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ESTIMATED CASH AVAILABLE FOR DISTRIBUTIONS [A+B+C] |
$ | 1,103 | $ | (98 | ) | $ | (575 | ) | $ | | 430 | |||||||||||||
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(a) | Estimate change for Recoveries from European Non-Controlled Affiliates primarily reflects a change in the reporting basis following an adverse decision by the UK Court of Appeal in the ECAPS litigation. See Note 1 Basis of Presentation, Key Assumptions and Note 6 Legal Proceedings herein for further detail. |
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Quarterly Financial Report as of October 7, 2021 (Unaudited)
Estimated Remaining Creditor Recoveries
The following schedules show the estimated remaining recoveries for LBHI by claim class, based on the Estimated Cash Available for Distributions in the preceding table on page 4. The estimated remaining recoveries on page 4 and the schedule below do not include (a) potential recoveries from the Excluded Litigations, and (b) estimates for potential catch-up distributions on potential full or partial allowance of any disputed claims.
($ in millions) | ||||||||||||||||||||||
Lehman Brothers Holdings Inc. | ||||||||||||||||||||||
Allowed Claims Eligible for Distributions (1) |
Estimated Remaining Recovery |
Estimated Remaining Recovery % as of 10.07.2021 |
Actual Recovery % Thru D23 (2) |
Estimated End of Case Recovery % |
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Class |
Designation |
$ | $ | A | B | = A + B | ||||||||||||||||
3 | Senior Unsecured |
$ | 82,521 | $ | 223 | 0.270 | % | 46.473 | % | 46.743 | % | |||||||||||
4A | Senior Affiliate Claims |
33,537 | 81 | 0.242 | % | 37.425 | % | 37.667 | % | |||||||||||||
4B | Senior Affiliate Guarantee |
9,521 | 23 | 0.237 | % | 36.519 | % | 36.756 | % | |||||||||||||
5 | Senior Third-Party Guarantee |
30,559 | 58 | 0.189 | % | 29.220 | % | 29.409 | % | |||||||||||||
7 | General Unsecured |
4,930 | 12 | 0.251 | % | 43.506 | % | 43.757 | % | |||||||||||||
8 | Derivative Affiliate / Affiliate Guarantee Claims |
451 | 1 | 0.222 | % | 34.384 | % | 34.606 | % | |||||||||||||
9A | Third Party Guarantee Derivatives |
17,923 | 32 | 0.178 | % | 27.504 | % | 27.682 | % | |||||||||||||
9B | Third Party Guarantee Derivatives RACERs |
| | 0.108 | % | 16.721 | % | 16.830 | % | |||||||||||||
10A | Subordinated Class 10A Claims |
3,399 | | | | | ||||||||||||||||
10B | Subordinated Class 10B Claims |
10,330 | | | | | ||||||||||||||||
10C | Subordinated Class 10C Claims |
1,493 | | | | | ||||||||||||||||
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Total | $ | 194,664 | $ | 430 | ||||||||||||||||||
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(1) | Estimated Recovery percentages are calculated based on recoveries of Allowed Claims Eligible for Distributions as reported on Exhibit B of the 23rd Distribution Notice filed on September 30, 2021. For purposes of this calculation: |
a. | Allowed claims exclude (i) claims against LBHI satisfied in full through the combination of the primary obligor and guarantee distributions from LBHI, and (ii) previously Allowed Claims that have been withdrawn. |
b. | Disputed claims are assumed to be allowed at zero, and all cash reserves currently held on behalf of holders of disputed claims are assumed to be released for the benefit of all holders of Allowed Claims. |
c. | Allowed Claims Eligible for Distributions exclude Allowed Claims that LBHI owns against itself. |
d. | Allowed Claims that participated in the Voluntary Final Distribution concurrent with D23 were deemed satisfied in full and thus the Allowed Claims that participated in the Voluntary Final Distribution have been excluded from this calculation. See the order authorizing the Final Distributions to Certain Creditors (Docket No. 61161) for further information. |
(2) | The 23rd Plan Distribution occurred on October 7, 2021 (D23). Through D23, the Debtors have made distributions to creditors totaling $128.9 billion, of which $95.9 billion were payments on account of claims owned or formerly owned by third party creditors. |
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Quarterly Financial Report as of October 7, 2021 (Unaudited)
III. | Notes to the Cash Flow Estimates |
Note 1 Basis of Presentation
Objectives
On the Effective Date, the Plan became effective and the Debtors emerged from bankruptcy with a new Board of Directors (LBHIs Board of Directors hereinafter referred to as the Board). The Company continues to pursue the objectives of asset value maximization and timely distributions to creditors of available cash through the optimal execution of an orderly wind down process and the judicious and timely resolution of claims. Pursuant to the Plan, the Plan Administrator has made and expects to continue to make distributions to creditors of Debtors, with each entity subject to review at each distribution date.
Basis of Presentation
The information and data included in the Quarterly Financial Report, including the Notes to the Cash Flow Estimates (the Quarterly Financial Report) are derived from sources available to the Debtors and LBHI-Controlled Entities (collectively, the Company or Controlled Affiliates). The term LBHI-Controlled Entities refers to those entities that are directly or indirectly controlled by LBHI and have not filed for protection under Chapter 11 of the Bankruptcy Code. LBHI-Controlled Entities excludes, among others, certain entities (such as Lehman Brothers Inc. (LBI) and Lehman Brothers International (Europe) (in administration) (LBIE)) that were not managed or controlled by LBHI as of the Effective Date and are under separate administrations in the U.S. or abroad, including proceedings under the Securities Investor Protection Act (collectively, Non-Controlled Affiliates).
The information and data included in these cash flow estimates and notes thereto (the October 7, 2021 Cash Flow Estimates) were prepared to update the June 30, 2021 Cash Flow Estimates filed September 30, 2021 (the June 30, 2021 CFE), and are based on estimated cash flows from assets managed in an orderly wind down and/or sale (and related costs of operations) until the Companys activities are fully resolved.
These October 7, 2021 Cash Flow Estimates include an estimate of expenses to be paid through final termination of the Company on such matters as asset disposition, litigation and disputed claims resolution, administrative wind-down, and related activities. These estimates also include the estimated costs of a small subset of the Companys current staff committed to stay for many years, if necessary, to oversee the resolution of remaining disputes, other matters and residual wind down activities. These estimates are subject to ongoing review and revision. Actual expenses may differ materially from these estimates.
The Company has prepared the Quarterly Financial Report based on the information available to the Company at the date of filing; however, such information may be incomplete and may be materially deficient. Material uncertainties continue to exist regarding the ultimate value realizable from the Companys assets, the timing of asset recoveries, future costs, and the eventual level of allowed creditors claims. Accordingly, the Quarterly Financial Report is not meant to be relied upon as a complete description of the Company, its business, condition (financial or otherwise), results of operations, prospects, assets or liabilities. The Company reserves all rights to revise this report.
In preparing the Quarterly Financial Report, the Company made various estimates and assumptions based on information available to the Company. As such, this report contains forward-looking statements that involve known and unknown risks, uncertainties and other factors which may cause the Companys actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including all statements containing information regarding the intent, belief or current expectation of the Company and members of its management. Accordingly, the financial information herein is subject to change and any such change may be material.
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Page 6 |
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Quarterly Financial Report as of October 7, 2021 (Unaudited)
Note 1 Basis of Presentation (continued)
The Quarterly Financial Report should be read in conjunction with the Companys previous filings, including Form 8-K reports as filed with the United States Securities and Exchange Commission (SEC), the Plan and related Disclosure Statement (the Disclosure Statement) dated August 31, 2011, and other documents filed after the Commencement Dates with various regulatory agencies or the Bankruptcy Court by LBHI and LBHI-Controlled Entities.
Future expenses and distributions are dependent in large measure on the resolution of various legal matters involving the Company and its Non-Controlled Affiliates. (See Litigation below.) The remaining legal matters require resolution in the United States, as well as multiple foreign jurisdictions, including the United Kingdom, France, Germany, India, and Australia. The timing for achieving final administrative or judicial resolution of these legal issues is uncertain. As a consequence, the Company cannot definitively specify a date for the final termination of its activities.
All cash flows in these Estimates are presented on an undiscounted basis.
Key Assumptions
Recoveries from Non-Controlled Affiliates
Estimates of recoveries from Non-Controlled Affiliates are based on internal valuation models utilizing information obtained from both Non-Controlled Affiliates fiduciaries, as well as information obtained by the Company through settlement negotiations and involvement on creditors committees.
The Companys estimates for recoveries from Non-Controlled Affiliates include estimates for recoveries related to LBIE and the Joint Venture (see Note 3 for additional information), as well as estimated recoveries from other Non-Controlled Affiliates in Europe and Asia.
Certain receivables from Non-Controlled Affiliates are denominated in foreign currencies, and as such, estimated recoveries related to these receivables are subject to movements in foreign exchange rates. The Company does not hedge against movements in foreign exchange rates.
The majority of estimated remaining recoveries from Non-Controlled Affiliates are contingent upon (i) the resolution of matters in dispute and/or active litigation, (ii) the receipt of non-U.S. government and/or Court approvals, and/or (iii) the final wind down of estates not controlled by the Plan Administrator. As such, the timing and amount of future recoveries from Non-Controlled Affiliates is uncertain, and actual recoveries may differ materially from these estimates.
At this stage, the number of outstanding matters has been substantially reduced, allowing for greater transparency into LBHIs internal and confidential assumptions regarding expected recoveries on individual contested matters. Such transparency could undermine the ability of LBHI and certain of its controlled affiliates to achieve optimal outcomes through negotiated settlements. Solely for the purpose of maintaining the confidentiality of its assumptions relating to these uncertain recoveries, which are informed by privileged advice from counsel, LBHI now treats ECAPS-related litigation and the AGR litigation as Excluded Litigations herein and therefore excludes estimates for ECAPS litigation-related recoveries, including estimated recoveries under agreements with holders of approximately 16.8% of the ECAPS, and AGR-related litigation recoveries from these October 7, 2021 Cash Flow Estimates. See Note 6 Legal Proceedings for further information on these litigations.
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Page 7 |
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Quarterly Financial Report as of October 7, 2021 (Unaudited)
Note 1 Basis of Presentation (continued)
Litigation
The Company is involved directly and/or indirectly in numerous litigations that will impact its recoveries from Non-Controlled Affiliates. The Companys estimates of recoveries from Non-Controlled Affiliates incorporate the Companys current assumptions regarding the resolution of these matters (see Other Litigations in Note 6 for additional information).
In addition, the Company has certain litigation pending against parties other than Non-Controlled Affiliates in U.S. courts which may result in potential recoveries to the Company. For the purpose of these October 7, 2021 Cash Flow Estimates, estimates for all litigations are included, with the exception of matters listed under Excluded Litigations in Note 6 herein (Excluded Litigations). The estimated costs (i.e., professional, legal and advisory fees) of supporting all of the Companys litigations, including the Excluded Litigations, are included.
Reporting of Claim Assignments
As part of the Companys planned operational wind down and legal entity dissolution process, the Company has assigned and will continue to assign claims among Controlled Entities, typically from a subsidiary entity to a parent entity, with no resulting economic effect on estimated overall recoveries. These assignments are reflected in the Transfers, Reclassifications, Adjustments column in the tables herein. For claim assignments in which Debtor entities are assigned claims against themselves (i.e., when LBHI is assigned a claim against LBHI), the receivables and payables are netted.
This Quarterly Financial Report:
| reflects activities through October 7, 2021; |
| is not audited nor prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP); |
| includes certain items that remain under continuing review by the Company and may be accounted for differently in future Quarterly Financial Reports. |
Due from/to Affiliates
(as shown in the Balance Sheets and Note 3 and Note 4 herein)
Due from/to Affiliates represents (i) receivables related to transactions among LBHI, LBHI-Controlled Entities and Non-Controlled Affiliates (separately or collectively, Affiliates), and (ii) payables by LBHI-Controlled Entities to LBHI and Non-Controlled Affiliates.
Due from/to Affiliates are recorded in the Balance Sheets at book values, and where applicable, these balances are recorded net of cash distributions. The balances do not reflect potential realization or collectability reserves for Due from Affiliates balances nor estimates of potential additional payables to Affiliates. As a result, adjustments (including write-downs and write-offs) to Due from/to Affiliates, which are material, will be recorded in the future. The Company will continue to review future estimated recoveries from Non-Controlled Affiliates to determine future write downs.
|
Page 8 |
|
Quarterly Financial Report as of October 7, 2021 (Unaudited)
Note 2 Other Receipts
The following table summarizes the main components of Other Receipts as of October 7, 2021:
$ in millions |
LBHI | LBHI - Controlled Entities |
||||||
Affiliate Claims (1) |
39 | | ||||||
Other |
1 | 2 |
(1) | Includes $39 million of recoveries from claims against Non-Controlled Affiliates acquired through settlements with third parties valued at estimated remaining recoveries, net of distributions. The largest component of Affiliate Claims is an admitted claim, prior to distributions, against Lehman Brothers Limited for £65 million. |
|
Page 9 |
|
Quarterly Financial Report as of October 7, 2021 (Unaudited)
Note 3 Due from/to Non-Controlled Affiliates
The following table presents, on an aggregate basis for LBHI and LBHI-Controlled Entities, admitted and unsettled filed claims (including statutory interest to date), collections to date from Non-Controlled Affiliates, and aggregate estimated remaining recoveries (including statutory interest):
Estimated Recoveries (3) |
||||||||||||||||||||||||||||
$ in millions |
Local Currency |
Admitted Claims in Local Currency (1) |
Collections To Date in Local Currency (1) |
Admitted and Unsettled Filed Claims in USD (2) |
Collections To Date in USD (1) |
Net Receivables in USD |
LBHI & LBHI- Controlled Entities |
|||||||||||||||||||||
Europe |
||||||||||||||||||||||||||||
Lehman Brothers Holdings Intermediate 2 Ltd - Subordinated |
USD | 6,139 | | 6,139 | Not included | |||||||||||||||||||||||
Lehman Brothers Holdings PLC - Subordinated |
USD | 1,900 | | 1,900 | Not included | |||||||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||||||
Total Europe - Subordinated (5) |
8,039 | | 8,039 | Not included | ||||||||||||||||||||||||
Lehman Brothers Finance S.A. |
CHF | 10,153 | (2,100 | ) | 10,932 | (2,261 | ) | 8,671 | ||||||||||||||||||||
Lehman Brothers Holdings PLC - Senior |
GBP | 401 | (292 | ) | 547 | (398 | ) | 149 | ||||||||||||||||||||
Thayer Properties Limited |
GBP | 172 | (94 | ) | 234 | (128 | ) | 105 | ||||||||||||||||||||
LB (PTG) Ltd |
GBP | 170 | (93 | ) | 231 | (127 | ) | 104 | ||||||||||||||||||||
LB ODC 3 |
GBP | 101 | (64 | ) | 138 | (138 | ) | | ||||||||||||||||||||
Other |
1,363 | (1,336 | ) | 27 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Total Europe - Senior |
13,444 | (4,387 | ) | 9,057 | 282 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Total Europe |
21,483 | (4,387 | ) | 17,096 | 282 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Asia |
||||||||||||||||||||||||||||
LB Commercial Corp. Asia Limited |
HKD | 14,769 | (9,244 | ) | 1,910 | (1,187 | ) | 723 | ||||||||||||||||||||
LB Asia Pacific (Singapore) PTE |
USD | 621 | (365 | ) | 621 | (365 | ) | 256 | ||||||||||||||||||||
LB Investments PTE Ltd |
USD | 536 | (347 | ) | 536 | (347 | ) | 190 | ||||||||||||||||||||
LB RE Australia Commerical PTY LTD |
AUD | 218 | (66 | ) | 159 | (48 | ) | 111 | ||||||||||||||||||||
LB Australia Holdings PTY LTD |
AUD | 145 | (63 | ) | 106 | (46 | ) | 61 | ||||||||||||||||||||
Lehman Brothers Australia Ltd |
AUD | 111 | (66 | ) | 81 | (49 | ) | 33 | ||||||||||||||||||||
Other |
11,048 | (11,005 | ) | 43 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Total Asia |
14,463 | (13,047 | ) | 1,416 | 32 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Total |
$ | 35,946 | $ | (17,434 | ) | $ | 18,511 | $ | 314 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Totals may not foot due to rounding. |
(1) | Admitted Claims in Local Currency, Collections to Date in Local Currency and Collections to Date in USD include statutory interest expected and received to date, less (i) any applicable tax withholdings, which the Company will claim from the relevant tax authorities, and (ii) any distributions received on the claims prior to the assignments of the claims to LBHI and/or LBHI-Controlled Entities. |
(2) | Admitted and Unsettled Filed Claims in USD includes notional amounts on subordinated receivables and statutory interest. |
(3) | Refer to Note 1 Basis of Presentation herein for further information on the estimated recoveries from Non-Controlled Affiliates. |
(4) | Other claims against Lehman Brothers Limited and other Non-Controlled Affiliates acquired through settlements with third parties are included in Other Assets (refer to Note 2 Other Receipts for additional information). |
(5) | ECAPS-related litigation is treated as an Excluded Litigation herein, and therefore the October 7, 2021 Cash Flow Estimates exclude estimates for ECAPS litigation-related recoveries (see Note 1 Basis of Presentation, Key Assumptions for further information). |
|
Page 10 |
|
Quarterly Financial Report as of October 7, 2021 (Unaudited)
Note 3 Due from/to Non-Controlled Affiliates (continued)
The table below presents the Due from/to Non-Controlled Affiliates balances as of October 7, 2021, and the related activity since the previously filed Quarterly Financial Report as of June 30, 2021:
Activity 07/01/21 - 10/07/21 | ||||||||||||||||||||||||
$ in millions | As of June 30, 2021 |
Cash Receipts | Cash Distributions |
Claim Assignments |
Other (1) | As of October 7, 2021 |
||||||||||||||||||
Due From Non-Controlled |
||||||||||||||||||||||||
LB Holdings Intermediate 2 Ltd - Subordinated (2) |
$ | 6,139 | $ | | $ | 6,139 | ||||||||||||||||||
Lehman Brothers Holdings PLC - Subordinated (2) |
1,900 | | 1,900 | |||||||||||||||||||||
Lehman Brothers Finance S.A. |
8,704 | | (33 | ) | 8,671 | |||||||||||||||||||
Lehman Brothers Holdings PLC - Senior |
17 | (14 | ) | 145 | 149 | |||||||||||||||||||
Thayer Properties Limited |
109 | (2 | ) | (2 | ) | 105 | ||||||||||||||||||
LB (PTG) Ltd |
107 | (1 | ) | (2 | ) | 104 | ||||||||||||||||||
LB Commercial Corp. Asia Limited |
726 | (6 | ) | 3 | 723 | |||||||||||||||||||
LB Asia Pacific (Singapore) PTE |
256 | | (0 | ) | 256 | |||||||||||||||||||
LB Investments PTE Ltd |
190 | | | 190 | ||||||||||||||||||||
Other |
8,369 | (5 | ) | | (50 | ) | 8,313 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total Due From Non-Controlled | $ | 18,479 | $ | (29 | ) | $ | | $ | | $ | 62 | $ | 18,511 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Due To Non-Controlled (3) |
||||||||||||||||||||||||
Lehman Brothers Treasury Co B.V. |
$ | 12,288 | $ | (10 | ) | $ | | $ | 12,278 | |||||||||||||||
Lehman Brothers Finance S.A. |
668 | | | 668 | ||||||||||||||||||||
Lehman Brothers International (Europe) |
647 | (1 | ) | | 646 | |||||||||||||||||||
Storm Funding Ltd |
| | | | ||||||||||||||||||||
Claims held by third parties |
14,313 | (12 | ) | (7 | ) | 14,294 | ||||||||||||||||||
Other |
216 | (0 | ) | (0 | ) | 216 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
$ | 28,132 | $ | | $ | (23 | ) | $ | | $ | (7 | ) | $ | 28,101 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Other Due From Non-Controlled Affiliates primarily includes $159 million of statutory interest expected from certain UK Non-Controlled Affiliates, offset by (i) the write off of $51 million related to a final distribution from a Non-Controlled Affiliate, and (ii) $47 million resulting from the negative impact of movements in foreign exchange rates for the period calculated on the historical net receivable balances. |
Other Due To Non-Controlled Affiliates primarily includes the write off of $7 million related to satisfied claims as a result of LBHIs Voluntary Final Distribution in October 2021 (see the order authorizing the Final Distributions to Certain Creditors (Docket No. 61161) for further information).
(2) | Balances represent the notional subordinated receivables. |
(3) | Due to Non-Controlled balances from LBHI are included in Liabilities Subject to Compromise herein, and primarily include (i) claims against LBHI, net of distributions, originally held by Non-Controlled Affiliates that are currently held by third parties, and (ii) a claim held by Lehman Brothers Treasury Co B.V., in which LBHI has no direct or indirect equity interest. |
|
Page 11 |
|
Quarterly Financial Report as of October 7, 2021 (Unaudited)
Note 3 Due from/to Non-Controlled Affiliates (continued)
Joint Venture to Facilitate Resolution of LBIE Claims
On January 31, 2014, Lehman Brothers Holdings Intermediate 2 Ltd. (LBHI2), a Non-Controlled Affiliate, LBHI, and Elliott Management Corporation and King Street Capital Management, L.P. (together, the Funds) entered into definitive documentation and consummated a joint venture to facilitate the resolution of LBIE claims (the Joint Venture):
| LBHI2 contributed to the Joint Venture its admitted senior claim of GBP 36.3 million (Senior Claim), subordinated claims of GBP 1.24 billion (Sub Debt), and an economic interest in its preferred equity (Preferred Equity) in LBIE. |
| The Funds paid approximately GBP 650 million to LBHI2 (by way of a capital contribution to the Joint Venture) and contributed to the Joint Venture the distributions on their claims against LBIE (approximately GBP 2.6 billion face as of January 31, 2014) in excess of the principal amount plus post-administration interest at 8% per year. LBHI2s final recoveries and distributions will be determined following the resolution of the LBIE estate. |
The Joint Venture includes a joint recovery pool governed by a specific sharing formula. Subject to certain adjustments, which could be material, all recoveries from the Sub Debt, Senior Claim, Preferred Equity, and the Funds contribution are split as follows:
(a) | 100% to the Funds up to the Tier 1 Pool Threshold Amount; |
(b) | For recoveries between the Tier 1 Pool Threshold Amount up to the Tier 2 Pool Threshold Amount, 70% to the Funds and 30% to LBHI2; |
(c) | For recoveries between the Tier 2 Pool Threshold Amount up to the Tier 3 Pool Threshold Amount, 50% to the Funds and 50% to LBHI2; and |
(d) | For recoveries above the Tier 3 Pool Threshold Amount, 25% to the Funds and 75% to LBHI2. |
The Tier 1 Pool Threshold Amount is GBP 650 million. The Tier 2 Pool Threshold Amount is GBP 1.3 billion plus interest calculated at the simple rate of 2.25% from November 30, 2013 through
September 3, 2018; thereafter, interest is calculated at the simple rate of 1.25%. The Tier 3 Pool Threshold Amount is GBP 2.2 billion plus interest calculated at the simple rate of 4.25% from November 30, 2013 through September 3, 2018; thereafter, interest is calculated at the simple rate of 2.5%.
A detailed summary of the terms of the parties commitments and the Joint Venture is available at www.lehman-docket.com in the Key Documents section.
If LBIE makes distributions on the Preferred Equity before aggregate distributions from the Joint Venture to the Funds and LBHI2 have reached GBP 2.2 billion (plus interest), then, in certain circumstances, LBHI2, Luxembourg Finance S.a.r.l. (Lux Finance) and LBHI shall be obligated to make payments to preserve the economic terms of the transaction as if 100% of the Preferred Equity proceeds had been transferred by LBHI2 to the Joint Venture.
Receivables from the Joint Venture:
| LBHI has direct and indirect receivables from various UK Non-Controlled Affiliates, including the entity which receives proceeds directly from the Joint Venture LBHI2. There are various ongoing litigations (see Note 6 Legal Proceedings) regarding LBHIs share of beneficial interest in those UK Non-Controlled Affiliates. LBHI has included estimated recoveries from those entities in its Cash Flow Estimates, except with respect to Lehman Brothers Holdings PLC (see Note 1 Basis of Presentation, Key Assumptions for further information). |
|
Page 12 |
|
Quarterly Financial Report as of October 7, 2021 (Unaudited)
Note 4 Due from/to LBHI and LBHI-Controlled Entities
The table below presents the Due from/to LBHI and LBHI-Controlled Entities balances as of October 7, 2021, and the related activity since the previously filed Quarterly Financial Report as of June 30, 2021:
Activity 07/01/21 - 10/07/21 | ||||||||||||||||||||||||
$ in millions | As of June 30, 2021 |
Cash Receipts | Cash Distributions |
Claim Assignments |
Other | As of October 7, 2021 |
||||||||||||||||||
Due From Controlled |
||||||||||||||||||||||||
Debtors: |
||||||||||||||||||||||||
Lehman Brothers Holdings Inc. |
||||||||||||||||||||||||
RACERS Claims (1) |
298 | (0 | ) | 0 | 297 | |||||||||||||||||||
Pami Ali LLC |
2,731 | | 2,731 | |||||||||||||||||||||
Lehman Ali Inc (PCO) |
1,928 | | 1,928 | |||||||||||||||||||||
LB I Group Inc (PCO) |
1,554 | (26 | ) | | 1,528 | |||||||||||||||||||
314 Commonwealth Ave Inc (PCO) |
784 | | 784 | |||||||||||||||||||||
Real Estate Private Equity Inc |
625 | | 625 | |||||||||||||||||||||
Repe LBREP LP, LLC |
179 | (2 | ) | | 177 | |||||||||||||||||||
Other |
247 | (11 | ) | (0 | ) | $ | 235 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total Due From Controlled |
$ | 8,345 | $ | (39 | ) | $ | | $ | | $ | (0 | ) | $ | 8,306 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Due To Controlled (2) |
||||||||||||||||||||||||
LBHI-Controlled |
||||||||||||||||||||||||
Lehman Brothers Holdings Inc. |
8,048 | (39 | ) | $ | 0 | 8,009 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total Due To Controlled |
$ | 8,048 | $ | | $ | (39 | ) | $ | | $ | 0 | $ | 8,009 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Refer to Section IV.I.b of the Disclosure Statement for further information on the RACERS Claims. |
(2) | Due to Controlled balances from LBHI are included in Liabilities Subject to Compromise herein. |
|
Page 13 |
|
Quarterly Financial Report as of October 7, 2021 (Unaudited)
Note 5 Disputed Claims
The last remaining Disputed Claim is the LBF Guarantee Claim (Enasarco) with a filed amount of $62 million. LBHI has entered into a stipulation with the disputed guarantee claimant and has reserved the potential obligation under this agreement, including corresponding Plan Adjustments and interest calculated pursuant to the Plan, entirely in cash. See Note 6 Legal Proceedings LBF Guarantee Enasarco for further information.
|
Page 14 |
|
Quarterly Financial Report as of October 7, 2021 (Unaudited)
Note 6 Legal Proceedings
The Company is involved in or will be impacted by a number of judicial, regulatory and mediation proceedings concerning matters arising in connection with the bankruptcy proceedings and various other matters, including the proceedings listed below. The Company has not included in the October 7, 2021 Cash Flow Estimates any estimate of recoveries for the Excluded Litigations in the table shown below, but has included estimates of recoveries for all other affirmative litigation matters it is pursuing. The Company is not aware of any other litigation matters where the amount at issue exceeds $10 million. As more information becomes available, the Company may record revisions, which may be material, in future Quarterly Financial Reports. (See Note 1Basis of PresentationLitigation for further discussion on the impact of these litigations on the cash flow estimates.)
EXCLUDED LITIGATIONS |
||||||||
Counterparty |
Debtor(s) |
Commenced |
Court |
Most Recent | ||||
Mortgage Sellers | LBHI | Various | Various | (a) | ||||
PLC, LBHI2, LB GP No. 1 Ltd, Deutsche Bank (ECAPs) |
LBHI | Mar-18 | UK Court | (b) | ||||
LBIE Other | None | LBHI | Various | (c) | ||||
OTHER LITIGATIONS |
||||||||
Counterparty |
Controlled Entities Party to Litigation |
Debtor(s) Potentially Impacted by Litigation |
Court |
Most Recent Disclosure | ||||
LBF Guarantee - Enasarco | None | LBHI | Swiss Court | (d) | ||||
LBT Clawbacks | LBHI | LBHI | Bankruptcy Court | October 1, 2020 Balance Sheets - Docket No. 60960 | ||||
Sweetwater | LBHI | LBHI | Delaware Chancery Court | June 30, 2020 Balance Sheets - Docket No. 60877 |
|
Page 15 |
|
Quarterly Financial Report as of October 7, 2021 (Unaudited)
Note 6 Legal Proceedings (continued)
(a) | Mortgage Sellers |
LBHI filed complaints in the Bankruptcy Court against numerous mortgage sellers seeking indemnification arising from the Allowed Claims of Fannie Mae, Freddie Mac (collectively, the GSE Claims) and Private Label Trustees (the PL Claims) against LBHI for losses from defective loans purchased from LBHI. 127 cases have been resolved. 34 of the defendants have failed to respond to the complaints filed against them and LBHI is pursuing default judgments against them. There are 8 parties remaining that have responded to the complaints filed against them. In aggregate, the complaints against these remaining active defendants assert approximately $5 million in GSE Claims and $50 million in PL Claims. The PL Claims are subject to an allocation methodology to be approved by the Bankruptcy Court. For illustrative purposes only, if the methodology approved by the Bankruptcy Court is on the basis that each defendant will be allocated its pro rata share of the PL Claims, then the aggregate damages sought from the 8 defendants who have responded to the complaints filed would be reduced from $50 million to approximately $12 million. On March 25, 2020, LBHI filed a Notice with the Court providing preliminary and non-binding disclosure of the allocation methodology it may seek to apply in this case [Docket No. 60483 in Case No. 08-13555].
Certain defendants filed a motion to dismiss the complaints on the basis that Lehman Brothers Bank, the original purchaser of the mortgage loans at issue, never effectuated the assignment of its indemnity rights to LBHI prior to the commencement of the chapter 11 cases and therefore, the Bankruptcy Court does not have subject matter jurisdiction over those cases. The moving defendants also seek dismissal on the basis that LBHI gave up its indemnity rights when it sold the loans to the Private Label Trusts. LBHI opposed the motion. The Bankruptcy Court heard argument on October 16, 2019, and reserved decision.
On March 7 and 8, 2021, LBHI filed complaints against 60 smaller mortgage sellers, primarily brokers, seeking aggregate damages of $45 million. 53 of these cases have been resolved, which has reduced the aggregate damages sought in these cases to $5 million.
(b) ECAPs
Prior to the Commencement Date, the Company raised approximately $2 billion through the issuance in the UK of Enhanced Capital Advantaged Preferred Securities (ECAPS). Among the ECAPS issued via these UK funding partnerships were Lehman Brothers UK Capital Funding LP, Lehman Brothers UK Capital Funding II LP and Lehman Brothers UK Capital Funding III LP, (ECAPS I-III).
Lehman Brothers Holdings PLC (PLC) has outstanding approximately 0.8 billion of subordinated notes issued to ECAPS I-III and approximately $1.9 billion of subordinated debt which is held by LBHI. LBHI2 has outstanding approximately $3.186 billion of subordinated debt issued to PLC and approximately $6.139 billion of subordinated notes which is held by Lehman Brothers Holdings Scottish LP 3 (SLP3).
On March 16, 2018, the Joint Administrators of PLC and LBHI2 each made an application to the High Court in England to seek, among other things, its determination of issues of priority in respect of potential distributions to the holders of the subordinated issuances described above. The trial took place in November 2019. The Court gave judgment on July 3, 2020 (see Docket No. 60706). In essence, the Court decided that SLP3 (LBHI) is junior to PLC with respect to the LBHI2 subordinated debt, as PLC had argued, and that LBHI and ECAPS I-III are pari passu with respect to the PLC subordinated debt and that the ECAPS I-III subordinated debt was subject to discounting, as LBHI had argued. The Court also ruled that the LBHI subordinated debt (at the PLC level) was not subject to a release, as LBHI had argued. This ruling has the economic effect of awarding approximately 86% of the cash flows at issue to LBHI and 14% to ECAPS I-III.
|
Page 16 |
|
Quarterly Financial Report as of October 7, 2021 (Unaudited)
Note 6 Legal Proceedings (continued)
On July 24, 2020, at a hearing on consequential matters, Justice Smith gave permission to appeal the ranking issues at both LBHI2 and PLC, but did not give Deutsche Bank permission to appeal the Release and Discounting issues. Justice Smith also granted LBHI a cost award against Deutsche Bank and granted PLC a cost award against LBHI, which were subsequently settled.
LBHI has settled with entities which in aggregate hold approximately 16.8% of the ECAPS. The agreements provide for those hoders proportional share of the cash flows at issue to be shared as follows: 16.19% to such holders and 83.81% to LBHI.
Following a hearing commencing October 4, 2021, and ending October 8, 2021, the Court of Appeal of England and Wales gave judgment on October 20, 2021, relating to the ranking of claims held by LBHI and one of its affiliates in the insolvency proceedings of PLC and LBHI2 (the UK Judgment). Pursuant to the UK Judgment, the Court of Appeal of England and Wales reversed certain significant earlier declarations which had been delivered in July 2020 by the High Court of England and Wales. The High Court ruling would have resulted in materially higher financial outcomes for LBHI. Unless overturned or modified on appeal, the UK Judgment will have a material adverse impact on LBHIs estimated recoveries from its Non-Controlled Affiliates. A copy of the UK Judgment is available at Docket No. 61341.
On November 17, 2021, LBHI sought permission to appeal the UK Judgment to The Supreme Court of the United Kingdom. Certain other parties to the ECAPS proceedings filed objections to LBHIs application for permission to appeal to the Supreme Court on December 1, 2021. A decision on this appeal is pending.
For further information please refer to:
www.pwc.co.uk/services/business-
recovery/administrations/non-lbie-companies/lbh-
plc-in-administration.html and
www.pwc.co.uk/services/business-
recovery/administrations/non-lbie-companies/lbhi2-
limited-in-administration.html
(c) LBIE Other
The outcome of the following litigation may impact LBHIs potential indirect recoveries from LBIE:
AG Financial Products Inc.
On November 28, 2011, LBIE sued AG Financial Products Inc. (AGR), an affiliate of Assured Guaranty Corp., which in the past had provided credit protection to counterparties under credit default swaps. LBIEs complaint, which was filed in the Supreme Court of the State of New York (the New York Supreme Court), alleged that AGR improperly terminated nine credit derivative transactions between LBIE and AGR and improperly calculated the termination payment in connection with the termination of 28 other credit derivative transactions between LBIE and AGR. LBIE asserted in the complaint that AGR owes LBIE a termination payment of approximately $1.4 billion.
On July 2, 2018, the New York Supreme Court dismissed LBIEs claims with respect to the nine allegedly improperly terminated transactions in their entirety. That ruling remains subject to appeal. The Court also dismissed the claim that AGR breached its implied duty of good faith and fair dealing with respect to the valuation of the 28 terminated credit derivatives transactions, but found that there is a genuine question of fact as to the reasonableness and good faith of AGRs calculation of its loss, and so LBIE may proceed with its claim against AGR for breach of contract. On July 31, 2018, AGR filed a Notice of Appeal with the New York State Appellate Division with respect to the surviving claims. On January 17, 2019, the Appellate Division denied AGRs appeal. The trial was originally scheduled for March 9-20, 2020, but was adjourned by the Court as a result of risks posed by the coronavirus.
On November 3, 2020, LBIE filed a motion in the Bankruptcy Court seeking to reopen the Chapter 15 case and remove the state court case to the Bankruptcy Court. On December 1, 2020, AGR filed its opposition to LBIEs motions and its own motion to remand the case to State Court. The hearing on the motions was conducted on January 25, 2021, in the Bankruptcy Court and was continued on March 22, 2021, based upon further diligence requested by the Court. At the hearing, Judge Chapman read her decision from the bench, ruling that LBHIs motion to remove is denied and AGRs motion to remand is granted. The case was then assigned to the Honorable Melissa Crane of the New York State Supreme Court, Commercial Division.
|
Page 17 |
|
Quarterly Financial Report as of October 7, 2021 (Unaudited)
Note 6 Legal Proceedings (continued)
The trial began on October 18, 2021, and continued for five weeks, concluding on November 19th. The parties submited briefs on open evidentiary issues on December 13th and reply briefs on December 22nd. The briefing schedule for post-trial briefs will be determined after a ruling on the evidentiary issues.
(d) LBF Guarantee Enasarco
Enasarco v. LBF is a dispute regarding the appropriate valuation of a terminated derivative transaction. Enasarco filed a claim of CHF 67 million against LBF based on the loss incurred on the replacement of their derivative trade. The replacement trade was executed several months after the termination date of the original trade with LBF. LBF argued, among other things, that Enasarco had an obligation to value the trade as of the Early Termination Date, which would have resulted in a receivable to LBF, but in any event by a date earlier than used by Enasarco. LBF pursued the receivable in the UK, and lost. LBF was deined appeal in the UK. In Switzerland, LBF rejected Enasarcos claim and Enasarco objected. Enasarcos claim was litigated in first instance Swiss Court (on remand) on November 16, 2021, with judgment pending.
|
Page 18 |
|
Quarterly Financial Report as of October 7, 2021 (Unaudited)
Note 7 Taxes Payable
Taxes payable is an estimate of tax liabilities, net of the estimated impact of any refund claims, deposits and net operating losses (NOL). Taxes payable have been allocated among the members of the LBHI Tax Group pursuant to the Debtor Allocation Agreement (the DAA) (see below for further information).
As of October 7, 2021, the Company recorded an estimate of $17 million for potential pre- and post-petition amounts owed to federal, state, local and international taxing authorities, net of expected refund claims. Between June 30, 2021, and October 7, 2021, the Company reduced its Taxes Payable by $6 million as a result of global tax audit progress.
Debtor Allocation Agreement
The Debtor Allocation Agreement, which became effective on the Effective Date, addresses the relationship among the Debtors and certain Affiliates with respect to consolidated federal/combined state/local income taxes for pre-petition and post-petition years. Pursuant to the DAA, any tax receivables or payables related to pre-petition, consolidated group taxes, including the IRS refund, are treated as allowed pre-petition claims between LBHI and other Debtors and LBHI-Controlled Entities and subject to set-off or recoupment.
Net Operating Losses
The NOLs of the LBHI Tax Group (including LBHI-Controlled Entities) are subject to audit and adjustment by the IRS and primarily expire in or about 2028. Substantially all of the LBHI Tax Groups current consolidated net operating loss carryovers are attributable to the Debtors. The Plan provides for an orderly liquidation of the Debtors. As previously disclosed in the Companys Quarterly Financial Report as of March 31, 2012 [Docket No. 29731], the LBHI Tax Group received a private letter ruling from the IRS in connection with the Plan going effective that stated (i) the liquidation of the Debtors for U.S. federal income tax purposes may occur over an extended period, and (ii) the reduction of the LBHI Tax Groups NOLs as a result of the discharge of debt pursuant to the Plan generally would not occur until completion of the liquidation.
In January 2020, the Company received a supplemental IRS ruling extending the original ruling relating to the Companys liquidation. All remaining Debtor NOLs not previously utilized to absorb taxable income of the LBHI Tax Group are expected to be fully utilized to offset income resulting from the discharge of debt on the final date of liquidation of LBHI.
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Quarterly Financial Report as of October 7, 2021 (Unaudited)
Note 8 Subsequent Events
ECAPS Appeal Ruling
Following a hearing commencing October 4, 2021, and ending October 8, 2021, the Court of Appeal of England and Wales gave judgment on October 20, 2021, relating to the ranking of claims held by LBHI and one of its affiliates in the insolvency proceedings of PLC and LBHI2. See Note 6 Legal Proceedings and Docket 61334 for further information.
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IV. | Balance Sheets |
LEHMAN BROTHERS HOLDINGS INC. and LBHI-Controlled Entities
Balance Sheets As of October 7, 2021
(Unaudited)
($ in millions) |
Lehman Brothers Holdings Inc. 08-13555 (1) |
Total LBHI- Controlled Entities (2) |
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Assets |
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Cash and short-term investments |
$ | 35 | $ | 32 | ||||
Cash and short-term investments pledged or restricted |
117 | 2 | ||||||
Financial instruments and other inventory positions: |
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Commercial Real Estate |
3 | 0 | ||||||
Residential Real Estate and Other |
0 | | ||||||
Principal Investments |
6 | 10 | ||||||
Derivative Receivables and Related Assets |
4 | | ||||||
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Total Financial instruments and other inventory positions |
13 | 10 | ||||||
Receivables from LBHI and LBHI-Controlled Entities and other assets |
41 | 8 | ||||||
Investments in Affiliates |
(1,693 | ) | (0 | ) | ||||
Due from Affiliates: |
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LBHI and LBHI-Controlled Entities |
8,306 | 0 | ||||||
Non-Controlled Affiliates |
12,238 | 6,273 | ||||||
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Total Due from Affiliates |
20,544 | 6,273 | ||||||
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Total Assets |
$ | 19,056 | $ | 6,325 | ||||
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Liabilities and Stockholders Equity |
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Liabilities |
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Payables to LBHI and LBHI-Controlled Entities and other liabilities |
$ | 12 | $ | 4 | ||||
Due to Affiliates: |
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LBHI-Controlled Entities |
$ | 0 | 8,009 | |||||
Non-Controlled Affiliates |
0 | 2 | ||||||
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Total Due to Affiliates |
0 | 8,011 | ||||||
Taxes Payable |
12 | 5 | ||||||
Liabilities Subject to Compromise |
128,907 | | ||||||
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Total Liabilities |
128,932 | 8,020 | ||||||
Stockholders Equity |
(109,875 | ) | (1,694 | ) | ||||
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Total Liabilities and Stockholders Equity |
$ | 19,056 | $ | 6,325 | ||||
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See accompanying Notes to Balance Sheets
Note: All values that are exactly zero are shown as . Values between zero and $500,000 appear as 0.
(1) | Balances for LBHI do not reflect the impact of eliminations of intercompany balances and investments in subsidiaries. |
(2) | Balances for LBHI-Controlled Entities reflect the impact of eliminations of (i) intercompany balances only between LBHI-Controlled Entities and (ii) investments in subsidiaries only between LBHI-Controlled Entities. |
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