Lehman details valuation methodologies for European notes issuances

By Caroline Salls

Pittsburgh, Oct. 29 - Lehman Brothers Holdings Inc. detailed the methodologies it is using to value the notes issued through its European medium-term note program and German note issuance program, its Swiss certificate program and its Italian European inflation-linked program, according to an 8-K filed Friday with the Securities and Exchange Commission.

The company said these methodologies will be used to evaluate claims filed against it as guarantor based on the notes issued by Lehman Brothers Treasury Co., BV.

Lehman said it reviewed roughly 3,800 note issuances in connection with the claims evaluation, including par notes, zero-coupon notes and fair market value notes.

There were $33.7 billion of the Lehman Brothers Treasury-issued notes outstanding as of Sept. 14, 2008.

Valuation methods

The principles and methodologies to be used to determine the allowed claim amount for each of the Lehman Brothers Treasury-issued notes will include:

• A claim that arises from the guarantee of a structured note obligation is generally treated no differently under section 502 of the Bankruptcy Code than a direct claim arising from the same obligation would be treated;

• Under section 502(b) of the Bankruptcy Code, the Bankruptcy Court must determine and allow the amount of a claim as of the bankruptcy filing date. Consequently, interest stops accruing and accreting as of that date;

• If a fair market value note claim is contingent or unliquidated, the claim is estimated using "whatever method is best suited to the particular contingencies at issue."

When estimating under section 502(c) of the Bankruptcy Code, non-bankruptcy law governs the amount of the claim but bankruptcy law controls the amount of such claim that is allowed.

"The point is to recognize what the creditor bargained for, while avoiding a windfall to any party," the report said;

• Allowed par note claims will be equal to the sum of principal amount plus any matured interest as of the bankruptcy filing date, regardless of principal protection;

• Zero-coupon note claims will be equal to the sum of the issue price plus any accreted interest as of the bankruptcy filing date; and

• For some notes, the value recorded on the balance sheet does not represent the allowable claim amount. For par notes, the allowable claim amount includes an add-back amount adjusting the fair market value of the note to the original notional of the outstanding issue.

For zero-coupon notes, the allowable claim amount includes an add-back calculated based on the difference between the fair market value and the original issuance yield to adjust the value of the note back to the original issuance yield.

Claim estimates

According to the filing, the estimated maximum allowable claim amount for the fair market value notes will be $18.683 billion, or 74% of the notional amount; the estimated amount for the par notes will be $7.130 billion, or 21% of the notional amount, and the estimated amount of zero-coupon notes will be $882.2 million, or 4% of the notional amount.

The company said the potential total allowed amount of the Lehman Brothers Treasury-issued notes would be $27.046 billion.

New York-based Lehman Brothers Holdings was the fourth-largest investment bank in the United States. The company filed for bankruptcy on Sept. 15, 2008 in the U.S. Bankruptcy Court for the Southern District of New York. 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.