Lehman’s eight-hour fire sale
29 September 2008
Epic bankruptcy hearing goes into the small hours
New York’s finest bankruptcy lawyers descended on Manhattan’s downtown bankruptcy court on Friday 19 September to decide the fate of Lehman Brothers’ investment arm.
With history in the making, The Lawyer joined them. Arriving an hour and a half before the 4.30pm kick-off, I entered a courtroom packed solid with reporters, lawyers and representatives of aggrieved clients.
There was also a multitude of junior associates, sent to secure seats for partners planning to make late appearances. These juniors were made conspicuous by their absence once the bosses arrived.
Two overflow courtrooms and a warning of a fire hazard from overcrowding later, we were ready to begin the bankruptcy hearing of the century. And what a show it was.
Lehman’s counsel, Weil Gotshal & Manges partner Lori Fife, began the proceedings with a range of amendments made to the original acquisition by Barclays of the bank’s investment arm on 17 September.
A clarification letter had been drafted to amend the original $1.75bn (£945.08m) acquisition to $1.35bn (£729.06m) following an extraordinary week of events in the global financial markets.
“There are a lot of moving parts to this transaction,” said Fife’s partner and Weil bankruptcy star Harvey Miller. “This week there have been developments in the market and this acquisition by Barclays is a step to save a significant number of jobs at Lehman.”
To call the unprecedented events of recent weeks ‘developments’ is
a bold understatement. By 19 September Bank of America had acquired Merrill Lynch for $50bn (£27bn), the US Federal Reserve had bailed out insurer AIG to the tune of $85bn (£45.9bn) and Barclays had waded into the mêlée. Its original bid midweek would see it take on $72bn (£38.88bn) of securities liabilities, together with $68bn (£36.72bn) of trading liabilities from the bankrupt Lehman.
By 19 September, the court heard, the terms of this deal had changed. The numbers had dropped to $47.4bn (£25.6bn) and $45.5bn (£24.57bn) on securities and trading liabilities respectively, while the deal had also been amended to include Lehman Brothers Canada, Lehman Brothers Sudamerica, Lehman Brothers Uruguay and the bank’s private investment management business.
The action was fast and furious in the court, which started to resemble a Picasso sale at Sotheby’s. Clients listened in via their representatives’ phones, hedge fund representatives fired off emails to head office, while the lawyers in the madding crowd yelled out questions and demands.
The list of big legal names present was lengthy. It included former Weil bankruptcy head Martin Bienenstock, now at Dewey & LeBoeuf and representing Royal Bank of Scotland, which is thought to be exposed to more than $1.5bn (£810.07m) of Lehman trading losses.
As well as Bienenstock, new Bingham McCutchen restructuring partner Jeff Sabin was there representing Harbinger Capital. Sabin has certainly made a grand entrance at his new firm, having joined from Schulte Roth & Zabel
just weeks ago (TheLawyer.com, 10 September).
The roll-call went on. Akin Gump Strauss Hauer & Feld New York head Daniel Golden and Proskauer Rose partner Sheldon Hirshon were also present.
They were kept on their toes for hours as the proceedings continued into the early hours of Saturday morning. Creditor issues and the trade clearing system that had been established to ensure Lehman deals were able to proceed were all debated well into the weekend.
Early on in the proceedings, Judge James Peck candidly asked the Weil team whether it was necessary for a decision to be made that day. After receiving a firm “yes”, Judge Peck said that, in that case, the court would be in session until the deal was done and a decision was reached.
Eight hours later and approval for Barclays to proceed with the acquisition was secured. Judge Peck is clearly a man of his word.