Barclays-Lehman deal offers little consolation; Lehman proceedings will include structureds, expert says

By Kenneth Lim

Boston, Sept. 17 - The structured product market remained lackluster on Wednesday as the market dismissed hopes that Barclays' planned acquisition of Lehman Brothers Holdings Inc. would improve the prospects for holders of Lehman structured notes.

"It's a deal for the bankers, not the creditors," an investment advisor said.

Meanwhile, law Prof. Allen Ferrell at Harvard University told Prospect News that structured note holders will likely be included in bankruptcy proceedings, although what each holder can recover will depend on individual notes.

Barclays to buy Lehman assets

Barclays plans to buy Lehman's investment banking and capital markets businesses, its headquarters and two data centers for $1.75 billion, according to a deal announced late Tuesday.

Of that amount, just $250 million counts as consideration for the investment banking and capital markets operations, which have $68 billion in liabilities and about $72 billion in trading assets.

Barclays has also agreed to offer employees - estimated at about 10,000 - acquired through the deal the same employment terms as when they were at Lehman, which has filed for bankruptcy protection.

The deal, if approved, will push Barclays into the top spot on the structured product league tables, overtaking even a merged Bank of America Corp.-Merrill Lynch & Co. Inc.

Barclays is currently the third most active underwriter with $6.939 billion year-to-date, based on figures compiled by Prospect News. Lehman is in the eighth spot with $3.322 billion, giving the combined banks $10.261 billion. Merrill Lynch is currently first with $7.596 billion year-to-date, but Bank of America's 11th place $0.955 billion gives this pair only $8.551 billion.

Deal unlikely to help holders

But an investment advisor said the proposed acquisition by Barclays is unlikely to offer much respite for holders of Lehman notes.

"They're basically buying the operations, but if you're a note holder your claim is still against the holding company, not the capital markets subsidiary," the advisor said. "Lehman will have another $1.75 billion in cash, but that's tiny compared to what they owe."

The deal, however, would be good news for Lehman employees if it is approved, the advisor said.

"It's good if you're working at Lehman," the advisor said. "You get to keep your job, right? I guess it's good for New York too. They're not going to have 10,000 unemployed people on Wall Street."

Claims will depend on notes

Ferrell said structured note holders would likely be included in bankruptcy proceedings, but how the notes would be treated would depend on individual products.

"I think the phrase structured product covers such a variety of instruments, some are very close to being note holders, others are not as much, so I don't think you can generalize," Ferrell said.

The future of the Lehman-issued products is further clouded by the fact that they are entering what is mostly unknown territory. Ferrell, who specializes in corporate finance and securities and financial institution regulations, said he does not know of any precedence in which structured note holders bring a claim against a bank in a bankruptcy proceeding.

"There are various claims that have been brought as a result of purchases of structured products, but I'm not aware of litigation within a bankruptcy proceeding," he said. "I'm not saying that there's never been a case like this, but I'm not aware of any."

What Lehman noteholders can expect to get will mainly depend on how much Lehman has to distribute, he said.

"My understanding is that it will all depend on what the net assets of Lehman are," Ferrell said. "I just read that there's a sale to Barclays...so it really depends on the size. But my guess on what it's worth is it's going to be very much less...and I think the net assets will be rapidly exhausted by the more senior claims."

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.