Lehman Brothers CEO says leveraged loan opportunities could remain weak for up to 18 months

By Jennifer Lanning Drey

Portland, Ore., June 16 - Lehman Brothers Holdings Inc.'s chief executive officer Richard S. Fuld said the firm has seen improvements in the terms of deals carried out by its leveraged and sponsored loan businesses but expects related revenue opportunities to remain weak for the next six to 18 months.

Fuld's comment was made Monday during a conference call held to discuss the bank's second-quarter financial results.

During the second quarter, Lehman reduced its exposure to non-investment-grade acquisition finance facilities to $11.5 billion, representing a 35% drop from the balance at the end of the prior quarter, Ian Lowitt, Lehman's newly named chief financial officer, said during the call.

The decrease was driven by $4.6 billion of sales and syndications and $1.4 billion of commitments rolling off, he said.

Exposure to investment-grade acquisition finance facilities was reduced by 40% to $6.5 billion at the end of the second quarter. That reduction was driven by $2.0 billion of sales and syndications and $3.3 billion of commitments rolling off.

Since the close of the second quarter, another $3.0 billion of investment-grade acquisition finance exposure was subsequently repaid.

$2.8 billion loss

Firm wide, Lehman reported a net loss of $2.8 billion for the second quarter ended May 31. The loss compares with net income of $489 million for the first quarter of 2008 and net income of $1.3 billion for the second quarter of 2007.

Second-quarter net revenues dropped to negative $700 million, compared with $5.5 billion for the same period in 2007. The current-year figure reflects negative mark-to-market adjustments and principal trading losses, net of gains on certain debt liabilities.

Within the loss, Lehman reported net revenues of negative $3.0 billion in fixed-income capital markets but said structured credit, municipals and commodities enjoyed a strong quarter, driven by their trading performances.

The firm's investment banking segment reported net revenues of $900 million, relatively flat with the prior-year quarter. During the second quarter, strong high-grade debt underwriting revenues were offset by continued weakness in high-yield new issuance, Lowitt said.

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