Moody's cuts Lehman to B3

Moody's Investors Service said it downgraded the senior ratings of Lehman Brothers Holdings Inc., and those of certain guaranteed subsidiaries, to B3 from A2, subordinated debt to Caa2 from A3, preferred stock to Ca from Baa1, senior long-term rating to B1 from A1 and subordinated debt to B3 from A2. The short-term ratings for all rated Lehman entities were lowered to not-prime from prime-1. All long-term ratings were placed on review for further downgrade.

The downgrade follows the collapse in market confidence in the firm, Moody's said, and news that Lehman was filing for Ch. 11 bankruptcy protection after its failure to reach a merger agreement with a stronger strategic partner.

Moody's said the B3 rating on senior obligations reflects expectations that the financial regulators will look to achieve an orderly wind-down of the firm that should help support existing asset value coverage for senior creditors.

The B1 rating reflects the regulated entity's primary broker-dealer status and higher quality balance sheet relative to unregulated entities, the agency said.

Nevertheless, the extended time expected to affect such a wind-down brings uncertainty as to ultimate asset-value realizations, Moody's added.

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