Lehman looks to buy note to protect $437 million property investment

By Caroline Salls

Pittsburgh, June 8 - Lehman Brothers Holdings Inc. requested court approval to make an up to $255.4 million new debt investment in a New York high-rise building to protect its previous investment in the property, according to a Monday filing with the U.S. Bankruptcy Court for the Southern District of New York.

Specifically, the company wants to purchase a $255.4 million B note from estate funds.

Lehman said it will work with its official committee of unsecured creditors to buy the note at the best terms possible, but "acquisition of the B note even at its par value represents a valuable investment for LBHI and its estate."

According to the motion, Lehman originated $1.23 billion in loans to finance the purchase of the property at 237 Park Avenue in May 2007 by affiliates of Broadway Partners. This loan included $900 million of senior debt and an additional $330 million bridge mezzanine loan.

Lehman securitized the first $419.6 million of the senior debt and sold the next $255.4 million as a B note to PRII 237 Park, LLC. The remaining $225 million of the senior debt was restructured as a senior mezzanine loan and was never syndicated.

In addition to the senior mezzanine loan, Lehman holds a $60 million future funding facility, which was established at closing to provide additional capital for debt service shortfalls, leasing costs and capital expenditures. The facility is currently unfunded.

The Broadway Partners affiliates requested a $1.25 million draw on the future funding facility in July 2009.

However, Lehman said it decided that a larger restructuring of the property was necessary before infusing new capital, and it began restructuring talks with the borrower.

In August 2009, Lehman said it believed that the Broadway Partners affiliates were going to default on the B note and, as a result, it began discussions regarding a potential restructuring of the note.

Lehman said making a new investment in the property has significant upside for the company and is the best way to protect its roughly $437 million investment in 237 Park.

The company said its investment could be wiped out if another party buys the note and tries to foreclose.

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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