Lehman creditors seek information on pre-bankruptcy cash movement

By Caroline Salls

Pittsburgh, Sept. 26 - Lehman Brothers Holdings Inc. creditors Harbinger Capital Partners Special Situations Fund, LP and Harbinger Capital Partners Master Fund I, Ltd. asked the U.S. Bankruptcy Court for the Southern District of New York to order the company to produce information related to cash movement between Lehman and some of its affiliates in the 30 days leading up to the company's bankruptcy filing.

The Harbinger funds said they have made informal requests for the information in question, but it has not been provided.

In addition, the Harbinger funds said no cash-management motion was filed at the beginning of Lehman's case, and there is no information on the cash-management system in the first-day declaration of the company's former chief financial officer.

"The debtors' other court filings provide no disclosure as to where the reported massive cash sweeps went, or whether [Lehman Brothers Inc.] had recently received cash infusions from Lehman affiliates, in derogation of the rights of creditors of those affiliates, such as the Harbinger funds," the funds said in the motion filed Friday.

The funds said Lehman Brothers Holdings filed bankruptcy after cash was transferred to the holding company, and then perhaps "down-streamed" to Lehman Brothers Inc.

"There has been no disclosure of any kind as to the pre-petition cash movement," the funds said in the motion.

In addition, the funds said there was no time before Lehman filed its asset sale motion to find out any information on the pre-bankruptcy cash movement.

However, the Harbinger funds said it appeared in the sale motion and related asset purchase agreement that only $250 million of the proceeds from the sale of the assets of Lehman Brothers Inc. "could conceivably benefit the parent (although even that was not clear), while $1.3 billion in cash of the seller, LBI, would go to Barclays."

Additionally, the funds said the company announced just minutes before the beginning of the asset sale hearing that the $1.3 billion in Lehman Brothers Inc. cash that was to be sold to Barclays was no longer available for the transaction, with no further explanation given.

Equity interests transferred

The Harbinger funds also said they found out that Lehman Brothers Inc.'s equity interests in all of its subsidiaries were transferred to holding company non-debtor subsidiary Lehman ALI, Inc. after the bankruptcy case had been filed, although Lehman Brothers Inc. is allegedly only going to receive an intercompany note in an undisclosed amount in exchange.

"These transactions were in no way disclosed prior to or during the sale hearing," the funds said in the motion.

"To the contrary, at the sale hearing the Harbinger funds understood that LBI's equity interests in those entities remained with LBI and subject to the sale."

According to the motion, the Harbinger funds are obligees under counterparty arrangements with Lehman Brothers Special Financing, Inc.

The Harbinger funds said Lehman Brothers Special Financing owes the funds at least $250 million under International Swap Dealers Association, Inc. swap agreements, and the swap agreement debt is guaranteed by Lehman Brothers Holdings.

A hearing is scheduled for Oct. 16.

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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