Lehman seeks approval of $250 million equity interest sale

By Caroline Salls

Pittsburgh, Oct. 8 - Lehman Brothers Holdings Inc. requested court approval of its $250 million sale of equity interests owned by LB R3 Holdings LP, according to a Wednesday filing with the U.S. Bankruptcy Court for the Southern District of New York.

According to the motion, LB R3 Holdings is an indirect, wholly owned subsidiary of Lehman Brothers Holdings. LB R3 Holdings GP LLC is the general partner and Lehman Brothers Holdings is the limited partner of LB R3 Holdings.

Lehman said LB R3 Holdings is the beneficial owner of membership interests in R3 Capital Management, LLC, class B shares of R3 Capital GenPar MGP, Ltd., class B shares of R3 Capital SLP MGP, Ltd. and limited partnership interests in R3 Capital Partners (B), LP.

LB R3 Holdings acquired the equity interests under a May 28 master transaction agreement with Lehman Brothers Holdings and some of its affiliates and R3 Capital Partners Master, LP.

In connection with the investment transaction, Lehman said LB R3 made a $1 billion seed capital investment, representing an indirect 45% nonvoting equity interest in a related master fund. LB R3 also agreed to make a capital contribution to the fund in connection with a side letter.

Lehman said the events that drove down its credit standing impeded its ability to maintain normal business operations. As a result of Lehman's inability to maintain normal business operations, the company said LB R3 was unable to provide loans and financing through some of its affiliates.

In addition, Lehman said its Chapter 11 cases have created significant uncertainty in the marketplace regarding the impact of the cases on its operations and the fate of the seed capital investment.

If allowed to continue, Lehman said this uncertain state of affairs could lead to an erosion of the value of its equity interests.

Under the purchase agreement, Lehman's fund interests will be redeemed in full and a $250 million LP investment will be issued to Lehman.

The buyers will purchase and redeem the manager interests, GP shares, SLP shares and purchased fund interests.

The buyers are LB Capital Management, R3 Capital GenPar, R3 Capital SLP and R3 Capital Partners.

The $250 million purchase price will include a $125 million cash payment and a $125 million promissory note due May 31, 2009. The note will bear interest at a rate equal to the yield on the six-month Treasury bill rate as of the closing date.

In addition, LB R3 Holdings and LB R3 Holdings GP will merge into Lehman Brothers Holdings before the sale closing, with Lehman as the surviving entity.

New York-based Lehman Brothers Holdings is the fourth largest investment bank in the United States. The company filed for bankruptcy on Sept. 15. Its Chapter 11 case number is 08-13555.

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