Lehman granted court OK to restructure Archstone credit agreements

By Caroline Salls

Pittsburgh, May 25 - Lehman Brothers Holdings Inc. received court approval to restructure terms of its Archstone credit agreements, according to a Tuesday filing with the U.S. Bankruptcy Court for the Southern District of New York.

In 2007, some of the Lehman debtors and their non-debtor affiliates made equity investments and loans in connection with the leveraged buyout of a publicly traded real estate investment trust known as Archstone-Smith Trust.

Through their non-debtor affiliates, Lehman said the debtors currently hold roughly 47% of the controlling common equity interests in Archstone, and affiliates of Barclays Capital Real Estate Inc. and affiliates of Bank of America, NA collectively hold 47% of the interests.

In total, affiliates of Lehman, Bank of America and Barclays invested $4.8 billion into the common equity of Archstone, with $2.4 billion attributable to the Lehman debtors' indirect interests.

In addition, Lehman Commercial Paper Inc., Bank of America and Barclays provided secured financing to Archstone in connection with its acquisition that consisted of term loans, revolving loans, a development loan and mezzanine loans.

As of March 31, Lehman Commercial Paper held a beneficial interest of $2.5 billion of the acquisition financing provided to Archstone, while the other co-sponsors held $2.8 billion.

Lehman said the co-sponsors originally expected Archstone to generate enough funds to repay the acquisition financing through property sales and operations.

However, because of a decline in the state of the real estate market, Archstone has not been able to generate the revenues or property sales needed to meet its debt obligations, resulting in the need for additional liquidity.

According to the motion, the co-sponsors originally modified the terms of the acquisition financing in January 2009 in order to preserve the value of their debt and equity investments.

Under the initial modification, the co-sponsors committed an additional $485 million, plus available letters of credit, to offset Archstone's cash shortfalls.

However, in light of current general economic conditions and the state of the real estate market, Lehman said the debtors proposed a more comprehensive restructuring of the acquisition financing and the additional funding to improve Archstone's cash flow and liquidity on a long-term basis.

The key terms of the restructuring involve the conversion of $5.2 billion of the acquisition financing to classes of new equity interests entitled to a preferred return, the conversion of the additional financing to a new revolving credit facility with an extended maturity date and extensions of the maturity dates of the portions of the acquisition financing that are not converted to preferred equity.

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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