Lehman - Useful links

[The BeeDees]

Received this from Allen & Overy LLP
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This note summarises the initial legal issues that counterparties of entities in the Lehman Brothers group may wish to consider when evaluating their rights and remedies following the entry into insolvency proceedings of certain entities in the Lehman group.

On 15 September 2008, Lehman Brothers Holdings Inc., the ultimate parent company in the Lehman group, filed for protection under Chapter 11 of the United States Bankruptcy Code (Chapter 11) and a number of group entities in the UK entered into administration proceedings under the Insolvency Act 1986.

1. Which Lehman Brothers entities have filed?
As at noon UK time on 16 September 2008, the Lehman Brothers entities for which formal filings have been made are as follows:
US: (Chapter 11) Lehman Brothers Holdings Inc.
UK: (Administration) Lehman Brothers International (Europe) (an unlimited company)
Lehman Brothers Ltd
Lehman Brothers Holdings PLC
LB UK RE Holdings Ltd
Japan: (Civil Rehabilitation) Lehman Brothers Holdings Japan Inc.
Lehman Brothers Japan Inc.

While we are not aware of any other insolvency proceedings having been reported, it appears that regulatory authorities in Germany and France have taken action against various Lehman entities. BaFin in Germany has imposed a moratorium on Lehman Brothers Bankhaus AG and, in France, Commission Bancaire (the French banking supervisor) appointed an administrator on 15 September 2008 in respect of Banque Lehman Brothers SA, the licensed French bank in the group, and in respect of the French branch of Lehman Brothers International (Europe). Trading in the securities issued by a number of Lehman entities (including those listed in Hong Kong) has been suspended.

2. Are the Lehman Brothers entities that are in insolvency proceedings going to perform their obligations under existing contracts?
US: At present, the only US Lehman entity in a formal proceeding is Lehman Brothers Holdings Inc. As noted below, this entity is entitled to reject, assume or assume and assign executory contracts.
UK: We understand that the administrators, PricewaterhouseCoopers, intend to make a statement shortly with respect to the Lehman trading book. The administrators have set up two telephone hotlines for queries in relation to the administrations although, as you would anticipate, call volume is heavy. The numbers are:
+44 (0)207 102 0372 / +44 (0)207 102 6759

3. Can I terminate or close out my contract with Lehman Brothers?
You should check your contract to determine which Lehman Brothers entity is your counterparty. Whether parties can close out will depend on both the type of contract and whether the Lehman Brothers entity is a UK or a US entity. The general position is as follows:
US: But for certain "safe harbours" set out below, if the Lehman entity is subject to proceedings under Chapter 11, no creditor may terminate or close out an 'executory' contract (i.e. one under which obligations remain to be performed) or exercise 'self-help' remedies (e.g. rights of set-off).
UK: If the Lehman entity is subject to administration proceedings, provided the relevant contract allows for termination by reason of the entity's entry into administration, termination is permitted (although see below with regard to security enforcement).

3.1 I am a counterparty under a derivatives contract (or other securities contract) which involves a Lehman Brothers entity. Can I close out?
US: If the Lehman entity (or credit support provider) is a US company in Chapter 11 proceedings, close out is permitted (provided the standard terms of the ISDA master agreement have not been amended in this regard). We understand the vast majority of Lehman ISDA contracts include Lehman Brothers Holdings Inc. as credit support provider.
UK: If the Lehman entity is a UK company in administration, close out is permitted, provided that (i) the standard terms of the ISDA master agreement have not been amended in this regard and (ii) the close out is not a preparatory step towards enforcing security over the entity's assets (see below).

3.2. I have an open trade with a Lehman Brothers entity, which is in a proceeding, under which I am under an obligation (e.g. to make a payment, deliver securities or transfer a participation in a loan under a credit agreement). Do I still need to perform my obligation?US: A confirmed trade will generally be viewed as an executory contract, entitling the Lehman entity to reject it, assume it or assume and assign it to a third party. The entity has until the confirmation of its plan of reorganisation to make this election – which leaves the counterparty at risk pending the entity's decision. These risks differ, depending on whether the Lehman entity is the seller or the buyer and are complex. In relation to the transfer of participations in loans, we would refer you to the LSTA Legal Advisory memorandum dated 6 June 2008 for more detailed comment.
UK: The administration of the relevant entity does not, of itself, result in the termination of the contract although if the administrators confirm that they will not be in a position to cause the Lehman entity to perform its side of the bargain, this would be a repudiatory breach entitling the counterparty to accept the repudiation and terminate the transaction. Without such confirmation, however, there is a risk that, if the counterparty does not perform its obligations, it will be in breach of contract. This needs to be balanced against the risk that, if the counterparty does perform, the Lehman entity may fail to perform its side of the bargain.

3.3. I am a lender under a credit agreement with Lehman Brothers as borrower. Can I demand the repayment of outstanding advances? If there are undrawn commitments, do I still have to make funding available?
US: If the Lehman entity is subject to proceedings under Chapter 11:
(i) the lender will not have to make further funding available to the borrower in the proceedings; but
(ii) the lender may not demand the repayment of all outstandings simply by reason of the borrower's entry into Chapter 11.
UK: If the Lehman entity is subject to administration proceedings:
(i) the lender will not have to make funding available in the administration provided that the entry into administration constitutes a drawstop entitling the lender to decline to make further funding available; and
(ii) the lender may terminate its commitment and demand the immediate repayment of all outstandings, provided the relevant agreement permits, notwithstanding the administration (subject to the comments made below regarding the enforcement of security).

3.4. I am a lender in a syndicate which includes Lehman. Am I still obliged to lend?
Prima facie, yes. Lenders' obligations under syndicated credit agreements should be several. An insolvency filing by one lender would not normally affect the other lenders' obligations to lend.

3.5. I am a borrower under a credit agreement in which Lehman Brothers is the sole or one of a number of lenders. Will I have to repay the financing that has been made available?
This will depend on the terms of the relevant contract. As a matter of law, however, neither the entry into Chapter 11 (in the US) nor administration proceedings (in the UK) will entitle the relevant Lehman lender to demand the immediate repayment of outstanding advances. Borrowers should, however, expect the Lehman lender to decline to meet further funding requests.
Rollovers of utilisations under revolving credit facilities are complex and facility agents and borrowers should seek specific advice on the terms of the relevant credit agreement.

3.6. The Lehman entity under my contract is not one which has entered into Chapter 11 proceedings (in the US) or administration proceedings (in the UK). Can I close out?
The counterparty's ability to close out will depend on the terms of the relevant contract. E.g. if the contract provides that the counterparty may terminate or close out by reason of either the ultimate parent or any other entity in the Lehman Brothers group entering into insolvency proceedings, the counterparty may terminate and this right is unaffected by the fact that other entities in the group are in Chapter 11 or administration proceedings.

4. I have security for a debt owed to me by a Lehman Brothers entity. Can I enforce that security?
Assuming the counterparty has a debt that is immediately due and payable, the general position is as follows.
US: If the Lehman entity is subject to Chapter 11 proceedings, there is an automatic stay preventing the enforcement of any security held over the entity's assets (whether those assets are located in or outside the US) without the consent of the Bankruptcy Court (although certain "safe harbour" exceptions apply to security granted in relation to financial contracts).
UK: If the Lehman entity is in administration proceedings, subject to certain exceptions, no steps may be taken to enforce any security held over the entity's assets without the leave of the Court or the administrator. Where a person holds security that constitutes an eligible financial collateral arrangement under the Financial Collateral Arrangements (No. 2) Regulations 2003 (generally cash, tradeable bonds, shares and other related rights), the security may be enforced without leave notwithstanding the administration moratorium. However, individual advice will need to be given as to whether security falls within the scope of the Regulations.

5. I am in or about to initiate Court proceedings against Lehman Brothers. What impact will the insolvency filings have?
US: If the Lehman entity is subject to Chapter 11 proceedings, there is an automatic stay preventing the continuation or commencement of any legal proceedings against the entity without the consent of the Bankruptcy Court.
UK: If the Lehman entity is in administration proceedings, subject to certain exceptions under the EC Insolvency Regulation, no legal proceedings may be commenced or continued against the entity without the leave of the Court or the administrator.

6. Do I have to file evidence of my debt claim against Lehman Brothers?
Where a counterparty is owed a debt by a Lehman Brothers entity that has entered into insolvency proceedings, the position will be as follows.
US: The Bankruptcy Court will eventually require all creditors to submit a claim for the debt owed to them. The Court will set a filing date in due course but this is unlikely to occur for some considerable time.
UK: Where the Lehman entity is subject to administration proceedings, creditors will be asked to file proof of their claims solely for voting purposes as regards the conduct of the administration within 3 months of the commencement of the proceedings. If the administrators subsequently decide to make distributions to creditors out of the administration (rather than placing the relevant entity into liquidation proceedings), creditors will be asked to file a further proof.

7. What is the position in relation to set-off?
US: Although creditors are prevented from exercising set-off rights during the Chapter 11 proceeding without the leave of the Court, subject to certain exceptions (including in relation to claims acquired post-filing), a creditor's set-off rights will be preserved and recognised when distributions of the relevant entity's assets are finally made to creditors. NB – separate rules apply to set-off in relation to "safe harbour" transactions mentioned above.
UK: Unless and until the administrators announce that they intend to make a general distribution to creditors, counterparties may exercise contractual rights of set off against Lehman entities in administration proceedings. If and when the administrators announce an intention to distribute, contractual set-off is no longer permitted and mandatory insolvency set off applies. When a distribution is made to creditors, either in the administration proceedings or in a subsequent liquidation, subject to certain exceptions, a creditor will be entitled to set off against amounts owed by it to the relevant Lehman entity, sums owed to it by that entity. However, a creditor will not be able to exercise set-off in respect of a claim acquired by it against the Lehman entity after that entity's entry into administration (i.e. on or after 15 September 2008).

As will be appreciated, the situation with Lehman Brothers is fluid and regularly changing. Accordingly, this note merely summarises the general issues counterparties may wish to consider and does not constitute definitive legal advice. If further information is required, please speak to your usual Allen & Overy .
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Maybe you should speak to a lawyer if your bank is not being helpful.

[hello_there]

OP:
The LMA has provided some useful info on dealing with Lehman Brothers companies in administration. You might want to take a look.

LoanMarketAssociation

Also see http://www.lsta.org/ .

[KnowItAll]

Moving a few useful posts to their own thread.

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