Lehman gets interim OK to hire chief restructuring officer to oversee case seen as 'chaotic' so far

By Rebecca Melvin

New York, Oct. 16 - Lehman Brothers Holdings Inc. was granted interim approval to hire Bryan P. Marsal of Alvarez & Marsal North America LLC as chief restructuring officer by the U.S. Bankruptcy Court for the Southern District of New York Thursday.

Final approval of the retention will be heard Nov. 5, following amplifications and fine-tuning of the retention.

Marsal has already been instrumental in starting the process of stabilizing the organization, Lehman Brothers counsel Harvey Miller of Weil, Gotshal & Manges LLP told the court.

Later in the hearing, judge James Peck referred to Marsal as in "the midst of a truly heroic effort to marshal the data, cross border and with Barclays, to develop transparency."

When giving an overview of the commencement of the Chapter 11 cases that accompanied the first omnibus hearing, Miller depicted the case as one of massive scale and complexity.

In a simplified version chart of Lehman Brothers Inc. Enterprise, there were 4,000 different entities, color coded to depict entities under administration in the U.K. and those sold to Barclays Capital.

It was described as a business of $6 billion of consolidated assets, and at least that amount of debt, with 25,100 employees worldwide, where bankruptcy wasn't being contemplated even on the Friday before the Monday filing was made Sept. 15.

Even on Oct. 14, it was expected that Lehman would be able to remain in business, Miller said.

"There was no preplan, only the shocks of bankruptcy that resulted in a sudden cessation of operations, and a lockdown of Lehman Brothers in the U.K.," Miller said.

The point was important to make because on Friday transactions that were supposed to go through, were not concluded, and there have been allegations that Lehman made off with certain funds, Miller said. "There are a lot of transactions that got caught in the filing."

Resuscitating the systems

On Tuesday after the filing, the scene at Lehman's former headquarters at 745 Madison Ave. in New York resembled "bedlam," Miller said.

There was a collapse of integrated financial reporting systems that has had a huge impact in the case. Marsal's first order of business was data preservation.

The chief restructuring officer plans to request to hire a small army of specialists to be dedicated to trace transactions, particularly the derivatives.

A&M will seek to increase the workforce to 400, up from a current 160 and not including the Alvarez & Marsal personnel. The bulk of these hires, or about 200, will be dedicated to derivatives transactions, of which there are an estimated 1.5 million, including more than a million in the U.S. with 8,000 counterparties," Miller said.

Miller was ultimately able to comfort the court that although chaos ensued for the first three weeks, there is light at the end of the tunnel, and within 45 to 60 days, Lehman should be able to answer specific questions about what has become of certain transactions. Most of the outstanding inquires to date are regarding one-off swap agreements.

Marsal is meeting weekly with the Lehman board of directors, and there is information sharing, with good give and take, with the creditors committee, Miller reassured the court.

The immediate challenge is ability to recruit qualified people to unwind the most difficult of the transactions, or the derivatives, Miller said. People with expertise are needed and the compensation that has to be offered would not be in the realm of normal for a bankruptcy case, he said.

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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