Lehman looks to create guarantor entities for mezzanine foreclosures

By Caroline Salls

Pittsburgh, July 27 - Lehman Brothers Holdings Inc. and debtor affiliate Lehman Commercial Paper Inc. requested court approval to create two auditable credit-worthy guarantor entities and fund each entity with a capital contribution of up to $50 million in cash so they can serve as guarantors for typical non-recourse carve outs, according to a Tuesday filing with the U.S. Bankruptcy Court for the Southern District of New York.

The Lehman debtor affiliates are also seeking court approval to contribute an additional $50 million in cash, only if necessary, when further equity is warranted.

According to the motion, Lehman has needed a solvent, auditable entity as a guarantor to satisfy the requirements of senior mortgage lenders as it continues to bring foreclosure actions on mezzanine loan transactions to obtain its collateral.

The debtor affiliates said the absence of a guarantor has led to technical default, leaving the company with the choice of either paying off a mortgage loan at par, often with default interest, or walking away from its investment at a loss.

Lehman said its enterprise does not currently have a solvent entity that can be audited without significant costs and use of resources that can serve as a guarantor.

A hearing is scheduled for Aug. 17.

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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