In my last post, I reviewed the structure of Barclays’ $5.7 billion offer to purchase Lehman’s broker-dealer subsidiary.  The press has universally misquoted the purchase price as being only $1.7 billion, but–according to the motion filed with Bankruptcy Court–this only represents the pure cash component of the deal and excludes the $1.5 billion in "cure" costs and $2.5 billion in estimated employee retention costs.  Adding in these real costs brings the total consideration paid by Barclays to $5.7 billion.

Barclays’ offer was conditioned upon the deal’s closing no later than Tuesday, September 23.  If you’re planning this year’s National Conference of Bankruptcy Judges, Barclays drop dead date couldn’t have been timed better since the conference begins the next day and, coincidentally, Judge Peck is the featured speaker on two panels: one entitled, "Exit Strategies for the Subprime Mortgage Crisis"; the other entitled, "The Impact of the Subprime Meltdown: From a Ripple to a Tsunami."  Those panels alone are worth the price of admission.

As for the sale dynamics, after an extended hearing into the evening yesterday, Judge Peck entered this order approving Lehman’s motion to set bid procedures and set the hearing to approve the sale for tomorrow, September 19, at 4:00 p.m.  "Qualified bidders" will have until the hearing to submit a bid that must, at a minimum, provide for:

  • a $450 million DIP facility (comparable to this one [Order / Agreement] just approved on an interim basis, subject to a final hearing on October 2); and
  • the replacement by no later than the opening of business on 9/22/08 of all bridge financing advanced to Lehman by the Federal Reserve Bank of New York (and, p.s., good luck finding about $50 billion owed to the Federal Reserve on two days’ notice).

The approved sale procedures attached as an Exhibit to the Order further cement the deal in that they include a highly unusual "no-shop" / "no solicitation" provision, which most practitioners and judges would agree are generally forbidden in bankruptcy.  The procedures also place Lehman in the impossible position of having to provide 48 hours notice of its intent to enter into a competing transaction, though there’s less than 48 hours left until the sale hearing (not that it matters, since no one else is stepping forward).

Finally, the sale order provides that the hearing shall not be adjourned or canceled without the prior consent of the SEC, the CFTC, and the Federal Reserve Bank of NY.  If nothing else, this provision at least guarantees that senior officials from these agencies won’t be working non-stop for their 5th consecutive weekend.

So as Barclays enters the "major leagues," accompanied by England’s national anthem "blaring over the loudspeakers," let us pay tribute to the hard working–soon jobless–people who made Lehman great and to the ordinary people who plowed their hard-earned savings into Lehman securities only to be left "holding the bag."  May G-d bless them, and may G-d bless America.

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Rumor had it that former Weil Gotshal partner Marty Bienenstock (now with Dewey & LeBoeuf, NY) would be declared the winner of the Committee beauty pageant (described here), but lo and behold, as reported here, the prize went to Milbank, Tweed, Hadley & McCloy, which also represented the Creditors’ Committee in Enron and Refco.  Congratulations!

© Steve Jakubowski 2008