Lehman looks to make $272 million cash infusion to former Lehman Brothers Commercial Bank

By Jennifer Lanning Drey

Portland, Ore., Feb. 6 - Lehman Brothers Holdings Inc. requested court approval to infuse up to $272 million of cash to its indirect wholly owned non-debtor subsidiary Woodlands Commercial Bank, according to a Friday filing with the U.S. Bankruptcy Court for the Southern District of New York.

Woodlands was formerly known as Lehman Brothers Commercial Bank.

Lehman said the authorization to fund a capital injunction into Woodlands is necessary to preserve the ability for it to realize the fair value of the bank's assets and maximize recoveries to Lehman's creditors.

Lehman asked the court to allow it to make the initial infusion of up to $200 million by Feb. 20.

The infusions are expected to be made in exchange for a first right of recovery on Woodlands' claim against Lehman and/or others related to certain municipal securities, according to the filing.

According to the motion, Lehman's equity interest in Woodlands was $1 billion at Sept. 30.

However, in its Dec. 31 call report, the value of Lehman's equity in the bank was reported at $432 million, a level at which the bank is considered undercapitalized under applicable regulations.

Lehman believes the reported equity does not reflect the value that can be achieved by Lehman from the bank and that the diminution since Sept. 30 in the reported value is primarily due to the bank's purchase of municipal securities through Lehman Brothers Inc.

However, as a result of the reported value, Woodlands entered into a cease-and-desist order with its regulators that requires it to raise capital by Feb. 20.

Unless the bank complies with the cease-and-desist order, it faces an imminent risk of appointment of a receiver, which would likely lead to its assets being seized and subjected to a fire-sale liquidation, Lehman said in the filing.

As a result, any opportunity to realize value for Lehman and its creditors would be lost, Lehman said.

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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