9/22/08 Update: Here’s the final complete Asset Purchase Agreement (including First Amendment and Clarification Letter). Also, this notice of appeal was filed by Bay Harbour Management and others. Here and here are the best news reports I’ve seen describing the surreal hearing.
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Just after midnight early today, Judge Peck entered
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Lehman Brothers, Inc.’s sale to Barclays is a foregone certainty, but–as Judge Easterbrook reminds us here–the "devil is in the details" (origins of phrase here). Scores of objections (like this one filed by Goldman Sachs) were filed by parties objecting to the posted cure amounts of contracts and unexpired leases
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
Meanwhile, back at the ranch, Lehman has just filed this motion to approve postpetition financing and this motion to approve bid procedures for "the sale of the Purchased Assets" (i.e., the Lehman Brothers, Inc. broker-dealer assets) to Barclays. Both motions will be presented at today’s 11:00 a.m. scheduled hearing. Here’s the hearing agenda.
In most endeavors, it’s important to start off on the right foot. I don’t think you’d call the Lehman bankruptcy filing today one such start. A well-planned bankruptcy case is orchestrated so that the early days of the case represent a seamless flow between the pre- and post-bankruptcy world. Calpine’s "first-day pleadings" (discussed at length here) reflected the kind of significant planning that would avoid a financial meltdown of the firm.
By contrast, Lehman Brothers Holdings, Inc.’s chapter 11 filing early this morning (docket here / petition here) shows that Lehman’s executives must have hired Weil Gotshal as late as possible to avoid any hint to its employees or the market that bankruptcy was possible. It played chicken, and lost. Lehman filed only three motions to open the case, and none are substantive:
Like Drexel before it, only the holding company filed, so it will be "business as usual" for all of Lehman Holdings’ subsidiaries, none of whose activities are directly subject to the protections of the automatic stay or the Bankruptcy Code and Court generally (SIPC confirmation here).
Maybe, in the end, preparation of a well-executed contingency plan wouldn’t have mattered much since, in BAPCPA, Congress (as discussed at length here) amended or added various provisions to the Bankruptcy Code that enabled a nondebtor party–without limitation–to terminate, liquidate or accelerate its securities contracts, commodity contracts, forward contracts, repurchase agreements, swap agreements or master netting agreements with the debtor. As noted in my previous post on BAPCPA’s effectively excluding Wall Street’s financial firms from the benefits of bankruptcy, Columbia Law professor Edward Morrison, with Columbia GSB economics legend Franklin Edwards, argued in a Winter 2005 article entitled Derivatives and the Bankruptcy Code: Why the Special Treatment? that BAPCPA’s extension of the Code’s protections for the financial services industry "to include a broader array of financial contracts, all in the name of reducing systemic risk … is a mistake." They argued that "[a] better, efficiency-based reason for treating derivatives contracts differently arises naturally from the economic theory underlying the automatic stay [i.e., derivative contracts are rarely needed to preserve a firm’s going-concern surplus]." Still, they warn (at pp.1, 4-5):Continue Reading Free Fall: Lehman Enters Chapter 11
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