Lehman looks to protect bank's loan servicing business via $325 million master repurchase agreement

By Caroline Salls

Pittsburgh, March 12 - Lehman Brothers Holdings, Inc. requested court approval to enter into a master repurchase agreement with Lehman Brothers Bank to provide the bank the $325 million of temporary liquidity it needs to protect its loan servicing business, according to a Thursday filing with the U.S. Bankruptcy Court for the Southern District of New York.

Lehman said it is trying to preserve its opportunity to realize the value of its equity interest in the bank, which was recently reported at roughly $467 million.

According to the motion, the bank's wholly owned subsidiary Aurora Loan Services LLC requires temporary access to up to $325 million in cash to assure its ability to satisfy monthly advance obligations stemming from the servicing of mortgage loans.

Lehman said a significant portion of Aurora's obligations will begin to become due on March 16. If Aurora does not satisfy these advance obligations, it could risk termination as servicer of the loans and loss of the related fee stream.

"Not only would Aurora's business be seriously disrupted and the economic value of the bank's franchise be diminished, but the bank would also run the risk that its regulators may significantly limit its activities," Lehman said in the motion.

Because of the recent collapse of the financial markets, Lehman said the bank lacks the ability to access the funding sources it would normally rely upon to finance Aurora.

To help the bank with its current funding needs, Lehman said it has decided to enter into a master repurchase agreement that will provide the bank with the temporary liquidity it needs to allow Aurora to continue normal operation of its mortgage loan servicing business.

Under the master repurchase agreement, Lehman will purchase a portfolio of residential mortgage loans from the bank for up to a total of $325 million in exchange for the bank's agreement to repurchase those loans at the price Lehman paid, plus interest of Libor plus 600 basis points.

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.

© 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.