Lehman sets procedures for $1.7 billion asset sale, seeks approval of $450 million DIP facility

By Caroline Salls

Pittsburgh, Sept. 17 - Lehman Brothers Holdings Inc. requested court approval of the procedures for the proposed $1.7 billion sale of the assets of broker-dealer subsidiary Lehman Brothers Inc. to Barclays Capital Inc. and of a $450 million debtor-in-possession credit facility from Barclays, according to Wednesday filings with the U.S. Bankruptcy Court for the Southern District of New York.

According to the sale procedures motion, the assets to be sold include designated assets related to Lehman Brothers Inc.'s business, as well as Lehman's worldwide headquarters.

Barclays has also agreed to assume an estimated $2.5 billion of liabilities related to Lehman's employees. All of Lehman Brothers Inc.'s employees will be given the opportunity to continue their employment with Barclays through Dec. 31.

All remaining customer accounts will be transferred to Barclays.

Under the purchase agreement, the sale must close by Sept. 23.

If Barclays is not the high bidder for the assets, Lehman will pay it a $100 million break-up fee and reimburse up to $25 million of its sale-related expenses.

Competing bids must be for at least $1.875 billion.

The sale hearing is scheduled for Sept. 19. If Lehman does not receive any qualified competing bids, it will proceed with the Barclays purchase agreement following court approval.

DIP loan details

In addition, Barclays has agreed to provide Lehman with $450 million in DIP financing, with $200 million to be available on an interim basis.

Lehman said its sale efforts were hampered by the fact that it currently is not receiving any financing under its pre-bankruptcy credit facilities and that all of its funds are on deposit in financial institutions that have or allege claims against the company.

Lehman said the financial institutions have refused to allow it to access these funds, so the company needs the DIP financing to pay its operating expenses and the administrative expenses of its Chapter 11 case.

"The DIP credit facility is absolutely essential in order to enable the debtor to preserve its business as a going concern for the time period necessary to get court approval of the sale and effect a closing of the sale," Lehman said in the DIP motion.

The DIP loan consists of a $250 million term loan and a $200 million revolving credit facility.

The facility will mature on the earliest of six months from closing, upon termination of the Barclays asset purchase agreement and upon the closing of a sale of Neuberger Berman.

Interest will be either Libor plus 600 basis points for the first 60 days from closing and Libor plus 750 bps thereafter, with a 3.5% Libor floor, or Base rate plus 500 bps for the first 60 days and Base rate plus 650 bps thereafter, with a 4.5% Base rate floor, at the lender's option.

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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