--Lehman enters deal with WCAS Fraser Sullivan Investment
Management to manage $5.3 billion commercial-loan portfolio.
--Portion of loans will be securitized to generate up to $2
billion for Lehman estate.
--Deal brings better return than selling the loans at depressed
prices or waiting until maturity.
(Update adds details from court documents throughout.)
By Eric Morath
Of DOW JONES DAILY BANKRUPTCY REVIEW
Lehman Brothers Holdings Inc. (LEHMQ) struck a deal with WCAS
Fraser Sullivan Investment Management LLC that will allow the
failed investment bank to turn its $5.3 billion commercial-loan
portfolio into cash.
The deal, filed with the U.S. Bankruptcy Court in Manhattan
Wednesday afternoon, allows Lehman to more quickly monetize one of
its largest assets, its commercial-loan portfolio, rather than
selling the loans at depressed prices or waiting for them to
mature. Some 30% of those loans don't mature until 2016 or
later.
Lehman reached an asset-management agreement with Fraser
Sullivan on Tuesday to oversee the entire commercial portfolio.
Part of Fraser Sullivan's job will be to securitize about $2.2
billion of the portfolio through collateralized loan obligations,
or CLOs, court papers said.
By securitizing the loans, Lehman's estate is expected to
realize between $1.6 billion and $2 billion in cash. The first loan
placement, of about $500 million in size, is expected to occur
within six months of the bankruptcy court authorizing the deal.
A second placement could occur within a year. Both placements
are subject to market conditions and Lehman's approval of the
terms.
The securitization move is consistent with Lehman's larger
strategy to bring additional cash into its estate ahead of
soliciting creditor votes on its liquidation plan later this
year.
"This is a great outcome for the estate," said Doug Lambert,
chief executive of Lamco LLC, the asset-management unit Lehman spun
out of its bankruptcy case.
"Not only does this agreement with Fraser Sullivan ensure
maximization of recovery value from our loan portfolio over the
long term, but it also provides continuity of management who are
aligned with the estate's mission to deliver that value back to
creditors," he said in an email.
Lambert is also a managing director Alvarez & Marsal, the
restructuring firm overseeing Lehman's liquidation.
Ten Lamco employees currently overseeing the commercial
portfolio in New York and London have been identified to move to
Fraser Sullivan if the court approves of the arrangement. A hearing
on the matter is set for August 17.
The commercial portfolio includes loans from 157 issuers with an
outstanding principal balance of $3.8 billion and unfunded
commitments of about $1.5 billion.
Fraser Sullivan will also manage the portion of the loan
portfolio that is not eligible to be transferred to CLOs. The loans
that are not eligible include the unfunded commitments and another
$1.6 billion in loans that could have a low credit rating, are too
large to be placed into a CLO or are in foreign currency.
The firm will look to enter into deals that maximizes the value
of those loans for Lehman's estate.
To manage the portfolio, Fraser Sullivan will receive a fee
equal to 25 basis-points for the assets transferred to CLOs and a
fee of 30 basis-points on the funded loans not yet securitized.
Fraser Sullivan won't collect a fee on the unfunded loans.
Fraser Sullivan has $2.5 billion in assets under management, not
counting the Lehman loans. The New York company is 50% owned by
certain partners of the private equity firm Welsh, Carson, Anderson
& Stowe.
(Dow Jones Daily Bankruptcy Review covers news about distressed
companies and those under bankruptcy protection.)
-By Eric Morath, Dow Jones Daily Bankruptcy Review;
202-862-9279; eric.morath@dowjones.com