On 30 September 2019, Lehman Brothers Holdings Inc (LBHI) sent a letter to many of its smaller creditors with claims of less than USD 10 million. This letter reached most Australian investors by mid-October. More specifically, all holders of the Lehman Brothers Property Note (ISIN XS0305158031 original maturity June 2009) (LPN) should have received notices (so long as they hadn’t previously been classed as a Convenience Claim). The letter from LBHI describes a Claim Consolidation Auction process that presents LPN holders (and other eligible Lehman debt holders) with “An Opportunity to Sell Your Claim”.
The proposed auction differs from a similar one held by Lehman Brothers Treasury (LBT) conducted earlier this year (and in which most LPN holders participated) in some respects. Importantly, in the LBT auction, if holders took no action they were automatically included in the auction process and their claims were cashed out; whereas in this upcoming LBHI auction, investors have to positively take action and opt into the auction otherwise their claims will not be sold.
The obvious economic consideration for LPN holders is whether the price they are likely to achieve at auction will be greater than the value of the ongoing dividends they will receive from LBHI until the bankruptcy process is complete. Another relevant consideration is the convenience factor of selling the claim now and finalising the investment in the LPN or continuing to hold the LPN claim and receiving dividends every six months until the LBHI bankruptcy completion which could be some years away.
A decision to participate in the auction needs to be made by 14 November 2019, but it is stressed in the documentation this is the date the investor’s forms are received by LBHI (not the date they are sent). For those investors who participate in the auction, LBHI estimates they will receive monies as a final settlement for their claims on 27 November 2019.
LBHI is guaranteeing a minimum price in the auction for claims. The LPN falls under Class 5: Senior Third Party Guarantee Claims and therefore investors will receive a minimum 0.589% of their claim amount (note this is different from the face value of their LPN holding as this is a percentage of their USD claim set shortly after LBHI’s bankruptcy). Of interest, the auction will seemingly be conducted prior to the 14 November 2019 deadline for the submission of claims as LBHI states it will announce the final proposed purchase price to be paid for claims on 11 November 2019.
Investors therefore have three choices:
- Do not participate in the auction and continue to receive dividends until the completion of LBHI’s bankruptcy.
- Elect to have their claim auctioned and submit the necessary paperwork as soon as possible to ensure it arrives before the 14 November 2019 deadline.
- Elect to have their claim auctioned and submit their paperwork post 11 November 2019 when the final proposed price is known and hope it is filled in correctly and received before the 14 November 2019 deadline to be included in the auction.
Amicus is currently advising its own retained clients with regards to the issue, but is happy to discuss with any holder on a goodwill basis.