By the time Lehman Brothers Holdings Inc.'s lawyers made a quick dash to U.S. Bankruptcy Court Monday morning, the resulting Chapter 11 was no surprise. The bankruptcy filing represents the best option available for an orderly liquidation of assets. It puts a stay on a flurry of lawsuits that creditors would almost certainly have filed against America's fourth-largest investment bank Monday and in the days to come. It prevents creditors from forcing a liquidation and from its holdings overseas from being seized.
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But questions remain about the procedure Lehman and its lawyers will undertake and what strategic benefits are gained. A lot of nitty-gritty details remain unclear; for example, do severance packages have to be coursed through the bankruptcy judge?
Here's some of what we know so far:
The parent holding company filed for Chapter 11, not its subsidiaries. By law, a broker-dealer can't file for Chapter 11, so Lehman's broker-dealer subsidiary would have been forced to file a Chapter 7 liquidation. The holding company-level filing circumvents that roadblock.
A Chapter 7 filing for the whole Lehman empire would have resulted in a trustee-supervised liquidation, with little ability to maneuver for better deals. Under Chapter 11, Lehman as debtor-in-possession can supervise its own sales. A Chapter 11 trustee is considered unlikely because creditors would have to prove mismanagement or fraud.
In its list of top unsecured creditors, Lehman said it owed $150 billion in bond debt and almost $2 billion in bank loans. Most of this is held by Asian and European entities. What Lehman hasn't revealed is secured creditors. Nor did Lehman give any indication of what sort of payout secured and unsecured creditors can expect.
The value of Lehman lies with some of its nonbankrupt subsidiaries. Media coverage has focused on Lehman's asset management firm, Neurberger Berman LLC, which Lehman indicated as early as July it would sell to gain capital, and which may go for anywhere from $4 billion to $8 billion. But the bankruptcy filing listed some other potentially valuable assets: major stakes in such companies as Imperial Sugar Co.; a fleet of gas carriers; real estate that ranges from malls and apartment buildings to Manhattan high rises; energy and hedge funds.
Lawyers now poring over documents believe these assets could be held by subsidiaries of Lehman's nonbankrupt subsidiaries. That means it's theoretically possible to sell these assets outside the purview of the bankruptcy court. But it's likely Lehman will ask the court for its blessing and the sales will occur under Sec. 363 of the bankruptcy code. - Matt Miller
