Lehman takes action to keep Aurora Bank subsidiary from receivership

By Caroline Salls

Pittsburgh, July 17 - Lehman Brothers Holdings, Inc. requested court approval to give wholly owned non-debtor subsidiary Aurora Bank FSB access to liquidity that the bank may need to fund brokered certificate of deposit obligations, according to a Thursday filing with the U.S. Bankruptcy Court for the Southern District of New York.

The company said that $550 million of the bank's $940 million of brokered CD obligations will mature in mid-August.

According to the motion, regulatory restrictions on the bank's operations could keep the bank from satisfying all of its deposit obligations absent a waiver from the Federal Deposit Insurance Corp. that allows the bank to issue new brokered CDs.

If the bank is unable to satisfy all of its obligations, the company and the bank's management believe Aurora's operations will be subject to further regulatory restrictions, including a possible seizure of the bank and appointment of a receiver.

As a result, Lehman said the bank must begin to take precautionary actions to arrange alternative sources of funding for its deposit obligations.

To help the bank with its liquidity needs, Lehman is seeking court approval to amend a master repurchase agreement with the bank to provide Aurora with up to $450 million in liquidity.

In addition, Lehman is looking to enter into a bridge financing facility with the bank's wholly owned loan servicing subsidiary, Aurora Loan Services, LLC, under which Lehman will provide Aurora with up to $500 million in short-term secured financing.

Lehman said the business plan submitted by the bank to the Office of Thrift Supervision would allow the bank to resume normal business operations through diversified funding sources, which would include the issuance of brokered CDs and retail deposits, without the need for further capital support from Lehman.

A hearing is scheduled for Aug. 5.

New York-based Lehman Brothers Holdings Inc. was the fourth-largest investment bank in the United States. The company filed for bankruptcy on Sept. 15, 2008. Its Chapter 11 case number is 08-13555.

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