Lehman Brothers Holdings Inc.
The State of the Estate
January 14, 2009
L E A D E R S H I P
P R O B L E M S O L V I N G
V A L U E C R E A T I O N
© Copyright 2008. Alvarez & Marsal Holdings, LLC. All Rights Reserved.
1
The information and data included in this Report are derived from sources available to Lehman
Brothers Holdings Inc. and its other subsidiaries that have filed proceedings under Chapter 11 of the
Bankruptcy Code (collectively, the “Debtors”). The Debtors have prepared this presentation based on
the information available to them at this time, but note that such information is incomplete and may be
materially deficient in certain respects. This report was prepared by the Debtors for purposes of
presenting the Court with a status of the Estate as of the date of the presentation and is not meant to
be relied upon by investors or others as a complete description of the Estate, its business, condition
(financial or otherwise), results of operations, prospects, assets or liabilities. The information in this
presentation will only be updated, including any corrections, in connection with future presentations to
the Court on the state of the Debtors’ estate. The Debtors reserve all rights to revise this report. All
amounts are unaudited and subject to revision.
2
Contents
I.
Executive Summary
II.
Financial
III.
Asset Team Reports
IV.
Claims Management
V.
Challenges / Closing
3
I.
Executive Summary
A.
Significant Progress Since Filing
Chaos of 9/15/08
Melting asset issues
Loss of all accounting systems
No inventory of assets
Loss of operational support
Loss of headcount to Barclays (9/22/08)
Stability of 1/14/09
Orderly disposition process in place
Strengthening cash position
Have an inventory of assets
Partial restoration of accounting systems
Work teams (headcount) in place
4
I.
Executive Summary (continued)
B.
Headcount Picture
9/15/08
1/1/09
Lehman
Legacy
170
130
A&M (Full Time)
-
150
Recruitment Program
-
229
(a)
170
509
Other Businesses
Lehman (LBI)
9,972
-
Neuberger Berman - US
1,912
1,886
(b)
Aurora/Banks/Trusts - US
1,651
1,747
(c)
International
11,453
-
24,988
3,633
Total Headcount
25,158
4,142
(a)
primarily former Lehman
(b)
non-debtor subject to sale closing
(c)
non-debtor
5
I.
Executive Summary (continued)
C.
Key A&M Responsibilities
1)
Maximize Recovery Value of Assets
6 Asset Teams in place
Tasks are defined / plans being developed
2)
Mitigate Potential Liability / Reconcile Claims
Major pending open issues include Derivative Claims, Unfunded Commitments, Parent Guaranteed
Debt, and Clearing Bank Claim Treatment
3)
Meet the Needs of the Court / US Trustee / Unsecured Creditors Committee
Timely reporting and transparency
Cost effective administration of the case
Timely completion of an exit
A.
Current Cash Position - Americas
6
II.
Financial - Cash
($ in millions)
9/14/08
1/2/09
Debtor Entities
Lehman Brothers Holdings Inc.
913
$
1,912
$
LB Derivative Products
297
347
LB OTC Derivatives
132
132
LB Commodity Services
30
212
Lehman Commercial Paper
461
928
LB Commercial Corporation
8
87
LB Special Financing
7
925
LB Financial Products
7
117
Other Debtor Entities (7 entities)
2
2
1,856
4,663
Non-Debtor Entities
Neuberger Berman
1,316
1,166
Other Non-Debtor Entities (83 entities)
134
142
1,450
1,308
Total Cash Balance
3,306
$
5,971
Funds were setoff by JP Morgan and applied to Derivatives claim
484
Post Chapter 11 setoff (11/14/08) by Bank of America subject to
Debtors' counterclaim in pending adversary proceeding
509
Pro Forma Cash Balance Before Impact of Seizures
6,964
$
Note
*
LBHI cash balance at 9/14/08 of $913 million includes the $509 million which was seized post-filing by Bank of America.
B.
Cash Flow Activities – LBHI
7
II.
Financial - Cash Flow
($ in millions)
Filing Date
thru 1/2/09
Comments
Receipts
Asset Sales
1,667
$
$1.3 billion sale to Barclays, $0.2 billion sale of Eagle Energy, $0.1 billion sale of R3 Capital stake.
Receipts from Subsidiaries
145
XO Jet note payoff ($59 million), Other ($86 million).
Investment / Other Settlements
86
Other Receipts / Income
17
1,916
Disbursements - Operating
Compensation and Benefits, Net
(43)
Rent / Leases
(39)
Accounts Payable / Other
(17)
Real Estate Capital Calls
(37)
Private Equity Capital Calls
(40)
Advances to Subsidiaries, Net
(118)
Capital Calls: PE $60 million, RE $41 million, Other Advances of $17 million.
(293)
Operating Cash Flow
1,623
Disbursements - Other
Professional Fees
(9)
DIP Fees / Interest
(14)
(23)
Net Cash Flow
1,600
$
Cash Balance
Beginning Cash
913
$
Net Cash Flow
1,600
Seized by BoA
(509)
Other
(92)
Includes changes in balances in legacy accounts.
Ending Cash
1,912
$
8
III.
Asset Team Reports
A.
Bank Book
B.
Principal Investments / Private Equity
C.
Real Estate Assets
D.
Derivatives Book
E.
Neuberger Berman
F.
Other Assets
9
III.
Asset Team Reports (continued)
A.
Bank Book
Loan Portfolio Summary by legal entity (12/30/08)
Lehman aggregate Loan Credit Exposure summary, by legal entity, includes: i) Firm Relationship
Loans (FRL) historically managed by the Loan Portfolio Group as well as ii) Secondary Trading
Loan positions previously managed by individual Lehman Traders.
($ in billions)
Total
Pledged
Total
Retained
Pledged
Total
Retained
Pledged
All Segments
Lehman Brothers Holdings Inc.
$0.6
$0.3
$0.3
$0.3
$0.1
$0.2
$0.3
$0.2
$0.1
Lehman Commercial Paper Inc.
14.3
8.0
6.3
6.6
2.1
4.5
7.7
5.9
1.8
LCPI London Branch
5.8
4.8
1.0
2.1
1.4
0.7
3.7
3.4
0.3
Other
1.4
0.7
0.7
1.3
0.6
0.7
0.1
0.1
-
Lehman Subtotal
22.1
13.8
8.3
10.3
4.2
6.1
11.8
9.6
2.2
LB Bankhaus London Branch
6.0
5.9
0.1
2.2
2.1
0.1
3.8
3.8
-
LB Commercial Bank (LBCB)
9.6
9.6
-
2.4
2.4
-
7.2
7.2
-
Lehman Brothers Bank
3.7
3.7
-
0.2
0.2
-
3.5
3.5
-
Regulated Entity Subtotal
19.3
19.2
0.1
4.8
4.7
0.1
14.5
14.5
-
Grand Total
$41.4
$33.0
$8.4
$15.1
$8.9
$6.2
$26.3
$24.1
$2.2
Total
Funded
Unfunded
10
A.
Bank Book(continued)
Credit Review Process –Initiated new Credit Exposure Review Process, resulting in Risk Rating
of 406 US FRL Borrowers representing $22 billion or 53% of aggregate Lehman Credit Exposure.
The Review process for Foreign FRL and Secondary Trading positions has been initiated.
Credit Quality as of 12/30/08:
III.
Asset Team Reports (continued)
($ in billions)
Lehman
Market
Number of
% of Total
Rating
Equivalent
Borrowers
Commitment
Funded
Funded
Unfunded
1
AAA
5
$1.4
-
-
$1.4
2
AA
13
1.3
0.2
3.4%
1.1
3
A
51
4.4
0.2
3.4%
4.2
4
BBB
118
6.1
1.0
18.3%
5.1
5
BB
111
3.4
1.2
22.1%
2.2
6
B
79
3.0
1.8
31.8%
1.2
7
CCC
16
1.5
0.5
9.0%
1.0
8
CC
6
0.6
0.4
6.6%
0.2
9
C
-
-
-
-
-
10
D
7
0.3
0.3
5.5%
0.0
Subtotal - Rated US FRL
406
$22.0
$5.6
100.0%
$16.4
UK FRL (Rating in Progress)
4.9
1.9
3.0
Bankhaus FRL to be rated
6.1
2.2
3.9
Secondary Positions to be rated
8.4
5.4
3.0
Grand Total
$41.4
$15.1
$26.3
11
A.
Bank Book (continued)
Contingent Liability Mitigation –Since Petition Date, reduced Unfunded Commitments by $6.3
billion or approximately 20%, thereby mitigating potential claim exposure
III.
Asset Team Reports (continued)
($ in millions)
Commitment Terminations
as of 1/6/09
Entity
Commitment
Cost
LBB
839
$
2
$
LBCB
3,303
11
LCPI
704
6
Other
1,494
-
Total
6,340
$
20
$
12
A.
Bank Book (continued)
Open Loan Trades Resolution
LCPI has resolved 19 of the 43 counterparty objections to date and anticipates that 60% of the
total objections will be settled by the 1/14/09 omnibus hearing.
III.
Asset Team Reports (continued)
($ in millions)
Total
Open Trades (a)
Estimated Net Proceeds Range
Open Trades
Assumed
Rejected
Voided
Low
High
UK
353
240
61
52
230
$
280
$
US
702
510
192
-
319
369
Total
1,055
750
253
52
549
$
649
$
(a)
Excludes intercompany trades
13
III.
Asset Team Reports (continued)
B.
Principal Investments / Private Equity
(a)
Six asset classes: Merchant Banking, Venture Capital, Real Estate, Private Fund Investments, CDO, European Mezzanine
(b)
Asia investments are valued as of 8/31/08
(c)
Certain foreign investments are being managed in conjunction with third party receivers
($ in millions)
9/30/08
Current
# of
Carrying
Invested
Unfunded
Category
Investments
Value
Capital
Commitments
Private Equity Group
6
(a)
$1,556
$1,929
$656
Direct Investments
114
4,756
5,203
213
GP / LP Investments
112
3,169
3,614
1,794
Asia Direct Investments controlled by LBHI
(b,c)
692
946
NA
NA
Asia Direct Investments controlled by others
(b,c)
369
1,338
NA
NA
Other
116
579
771
292
Total Principal Investments
1,409
12,344
$
NA
NA
14
III.
Asset Team Reports (continued)
B.
Principal Investments / Private Equity (continued)
Principal Investments Unfunded Commitments
(a) Represents transactions for which agreements, term sheets or LOIs have been executed
($ in millions)
Unfunded
Funded
Remaining
Reduction
Commitments
Pending
Reduction
Unfunded
In
To Be
Category
as of 9/14/08
to Date
to Date
Commitments
Process
(a)
Addressed
Private Equity Group
$1,103
$15
$432
$656
$591
$65
Direct Investments
431
147
71
213
-
213
GP / LP Investments
2,608
62
752
1,794
89
1,705
Asia Direct Investments controlled by LBHI
NA
NA
NA
NA
NA
NA
Asia Direct Investments controlled by others
NA
NA
NA
NA
NA
NA
Other
294
2
-
292
292
-
Total Principal Investments
4,436
$
226
$
1,255
$
2,955
$
972
$
1,983
$
15
III.
Asset Team Reports (continued)
C.
Real Estate Assets
Balance Sheet
($ in billions)
As of
12/31/08
Commercial - North America
Unpledged
5.6
$
Pledged
Chase
8.3
BankHaus
2.0
LBB/LBCB
1.2
Other Banks
4.8
Commercial - Europe
(1)
Unpledged
1.4
Receiver Control
8.5
Commercial - Asia
(1)
Unpledged
1.4
Receiver Control
6.3
Residential
3.4
Total Real Estate
42.9
$
(1)
Based on 8/31/08 data.
16
III.
Asset Team Reports (continued)
C.
Real Estate Assets (continued)
Where We Were – 9/15/08
People
Institutional knowledge starting to
walk out the door
Fundings
Many projects “dying on the vine”
and generating life/safety and other
issues with uncertainty around
funding and Lehman’s future
Where We Are
Effective legacy teams are in place:
Commercial 45
Residential 3
Corporate 8
Lehman is fulfilling its operational and
funding obligations:
Disbursements $78 million
Collections $191 million
17
III.
Asset Team Reports (continued)
D.
Derivatives Book
1)
Cash Collections
$2.0 billion in cumulative cash collections
484
484
438
1,526
0
1,100
2,200
As of Nov 7, 2008
As of Jan 2, 2009
Net Cash inflows post JPM set off
JPM set off on 10/3/08
Reported in Nov 13th
UCC meeting
922
2,010
($ in millions)
International bank accounts not yet included
18
III.
Asset Team Reports (continued)
D.
Derivatives Book(continued)
2)
Derivatives Book Summary
Note
(1) Receivables and payables reflect marks net of collateral as of 9/12/08 and are adjusted for known pledged assets.
(2) Termination status based on known terminations as of 1/2/09.
(3) All amounts reflect contracts, trades, and amounts which are subject to A&M responsibility.
Counterparty Focus
Phase I - Receivables - $23.8 billion (as of 9/12/08)
Counterparties
Trades
Total
(ISDA)
(000's)
($ in billion)
Risks to Realization
2,122
14
A.
Open
9.4
< >
All marks exclude counterparty
credit reserve and funding adjustments
< >
Market risk
< >
Liquidity and credit environment
negatively impacting value
1,808
450
B.
Terminated
14.3
< >
Alleged setoffs
< >
Reflects 9/12/08 values versus
termination date values
-
-
C.
Final Settled
-
3,930
464
23.8
$
19
III.
Asset Team Reports (continued)
D.
Derivatives Book(continued)
2)
Derivatives Book Summary (continued)
Note
(1) Receivables and payables reflect marks net of collateral as of 9/12/08 and are adjusted for known pledged assets.
(2) Termination status based on known terminations as of 1/2/09.
(3) All amounts reflect contracts, trades, and amounts which are subject to A&M responsibility.
Phase II - Payables - $ 13.0 Billion (as of 9/12/08)
Counterparties
Trades
Total
(ISDA)
(000’s)
($ in billion)
545
4
A.
Open
2.0
< >
Reconcile through claims process
and move to final settlement
1,645
438
B.
Terminated
11.0
-
-
C.
Final Settled
-
2,190
442
13.0
$
20
E.
Neuberger Berman
Debtors realize investment in Neuberger Berman - $1.8 billion, consisting of retained stock interests of
$1.0 billion and retained cash of $0.8 billion.
Key Issues
Complete execution of cost reduction plan at Neuberger Berman to reconfigure organization and
achieve $150 million EBITDA (19% EBITDA margin).
Subject to closing of sale projected to occur early March 2009.
III.
Asset Team Reports (continued)
($ in millions)
Securities Valuation
Retained Cash
Today
Pro-Forma
Revenue
800
$
*
800
$
Estimated Cash as of Closing
1,000
$
* 12/31 run rate
Est. Working Capital Adj.
(75)
EBITDA
-
150
Earn-out Liabilities
(105)
Margin
0%
19%
820
$
Multiple
8.6x
Enterprise Value
1,290
$
Preferred
875
Common
415
Debtors
Debtors
Preferred (93%)
814
$
Cash
820
$
Common (49%)
203
Securities
1,017
$
Retained Cash
820
$
21
III.
Asset Team Reports (continued)
F.
Other Assets
($ in millions)
Sold /
Book
Agreement
Type
Value
to Sell
Comments
Planes - Sold
2001 GIV-SP
$
23
Closed 12/23/08
1987 F50
6
Scheduled to close on 1/20/09
1987 B737
2
Closed 11/21/08
1987 B737
3
Closed 12/21/08
1988 B737
2
Scheduled to close on 1/21/09
1988 B737
2
Scheduled to close on 2/21/09
Net Jets Shares
15
Closed 12/23/08
57
$
53
Planes - For Sale
2008 G550
-
Have interested parties; Plan to continue marketing aircraft to potential buyers
1995 GIV-SP
15
Negotiating Purchase Agreement
2001 CRJ 200
-
Conversion 80% complete; Due 3/09
1995 CRJ 200
-
Conversion 90% complete; Due 2/09
1993 CRJ 200
-
Will not convert; Exploring leasing options
1987 B767
-
LOI submitted to interested party
1998 S-76C+ (Helicopter)
-
Marketing
107
15
Total Planes
164
68
Artwork
30
-
Establishing title, inventorying and consolidating to safe locations
Total Aircraft and Artwork
194
$
68
$
22
IV.
Claims Management
A. Forensic Work Streams
In anticipation of a request for a review of the actions of various parties in this case, a number of
forensic projects are underway. These include pre-filing and post-filing actions.
Pre-Filing Forensic Streams
1) Reconstruct the actions of the Lehman clearing banks (JP Morgan, Bank of America, Citibank) in
the time period leading up to the filing.
2) Reconstruct the actions of the Lehman clearing banks, DTC and Federal Reserve during the
week after the filing of LBHI and before the filing of LBI.
23
IV.
Claims Management (continued)
A. Forensic Work Streams (continued)
Post-Filing Forensic Streams
1) Review the disposition of Lehman collateral by the Lehman clearing banks to assess existence
of any claims
2) Review the value of collateral given to Barclays at the time of the LBI acquisition
3) Analyze and assess claims under the TSA
24
V.
Challenges To Achieving Objectives
A.
A&M Responsibility: Maximize Recovery Value of Assets
Issues:
1)
Currently a very depressed and illiquid market
2)
Need access to interactive systems to manage assets (TSA dependent)
3)
Need to resolve collateral disposition issues with JP Morgan, including the liquidation of balance
of Debtors pledged collateral still held and under control of JP Morgan
4)
Need to coordinate with LBI Trustee as to disposition of remaining collateral pledged with JP
Morgan
5)
LBHI is a large creditor of LBIE, LBI and certain Asian entities which are outside its control.
Undetermined when or what value will be realized from those proceedings
25
V.
Challenges To Achieving Objectives (continued)
A.
A&M Responsibility: Mitigate Potential Liability / Reconcile Claims
Issues:
1)
Large number of derivative trades and counterparties
2)
Access to interactive systems is needed to settle trades
3)
Resolution of the intercompany accounts
4)
Resolution of clearing bank potential claim issues
26
V.
Challenges To Achieving Objectives (continued)
A.
A&M Responsibility: Meet the needs of the Court / US Trustee / Unsecured Creditors Committee and others as required
Issues:
1)
Timely reporting is dependent on implementation of the TSA and Barclays accounting systems
2)
The appointment and scope of an Examiner will affect the timeliness of exit and cost effective
administration of the Debtors cases
27
V.
Closing
B.
Closing
From a business perspective, the administration of the case has progressed to stability and
control of assets.
Legacy Lehman understands the issues that need to be addressed.
On the asset management front, a conceptual framework for a plan of distribution to creditors is in
process.
Objective is to position the Debtors for exit from bankruptcy in 18-24 months.
28
V.
Closing (continued)
B.
Closing (continued)
Substantial progress has been made and momentum is building on derivatives book.
Derivative claims may be resolved in a more expeditious and reasonable time period if a mediation
process is developed. Consideration of that concept is underway.
Biggest impediments to a timely completion of the administration are the timetables of the other
insolvency fiduciaries administering related assets.