Lehman to participate in Hilton acquisition loan restructuring

By Lisa Kerner

Charlotte, N.C., March 22 - Lehman Brothers Holdings Inc. was granted court approval to participate in the restructuring of loans made in connection with the acquisition of Hilton Worldwide Inc., according to a Monday filing with the U.S. Bankruptcy Court for the Southern District of New York.

As previously reported in its motion, Lehman was part of a lender syndicate that provided roughly $21 billion in senior secured and mezzanine acquisition financing to affiliates of The Blackstone Group in connection with their acquisition of Hilton Worldwide common stock.

Under the proposed restructuring, Hilton's parent would contribute $800 million to repay a portion of the loans, the maturity of a mortgage loan and the senior mezzanine loans would be extended for two years to November 2015 and roughly $2 billion of the most junior loans would be converted to preferred equity.

The sponsor's new investment will earn a 15% annual return and carry an $800 million liquidation preference, the motion said. The junior mezzanine loans will be converted to preferred equity with a potential debt structure with an 8% annual return and, when combined with the new investment, a $2.8 billion total liquidation preference.

Also, holders of the junior mezzanine loans and the sponsor will receive a profit interest entitling them to a total of 10% of all distributions after the preferred equity's liquidation preference and distribution of $5.66 billion to the sponsor.

In return, Lehman said the lender syndicate will earn improved economics, including interest rate steps and extension fees.

The company said the mortgage loan will bear interest with increased spreads ranging from 1.75% to 2.3% through November 2013. Interest rate spreads on the mortgage loan and the senior mezzanine loans will increase by an incremental 1% during the extension term expiring in November 2014 and an incremental 0.5% during the extension term expiring in November 2015.

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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