Lehman Brothers Holdings Inc Plan Trust (LEHMQ)
Filed: 22 Sep 10, 12:00am
 © Copyright 2010. Alvarez & Marsal Holdings, LLC. All Rights Reserved. L E A D E R S H I P P R O B L E M SO L V I N G V A L U E C R E A T I O N Lehman Brothers Holdings Inc. The State of the Estate September 22, 2010 Exhibit 99.1 |
 1 The information and data included in this report are derived from sources available to Lehman Brothers Holdings Inc. and its 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 their respective estates 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 Debtors’ estates, businesses, 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. Certain prior period balances in this presentation may have changed from amounts previously presented, which may be a result of certain reclassifications made, refer to the footnotes herein accordingly. The Debtors reserve all rights to revise this report. All amounts are unaudited and subject to revision. This report is intended to be read in conjunction with annotated explanations and footnotes which have been included in the version of this report filed with the Court and included in the filing on Form 8-K with the Securities and Exchange Commission (“SEC”). The annotated version of this report is also available on the website that hosts information about the Debtors at www.lehman-docket.com. This report should also be read in conjunction with Monthly Operating Reports (“MORs”) and other reports filed with the SEC and the Court. These reports can also be located at www.lehman- docket.com. September 22, 2010 Lehman Brothers Holdings Inc. – The State of the Estate |
 2 Contents I. Executive Summary II. Asset Recovery Update A. Cash Position B. Cash Flow (Filing to Date) C. Highlights by Asset Category 1.) Loans 2.) Derivatives 3.) Private Equity / Principal Investments 4.) Real Estate 5.) Other Assets 6.) Litigation Activities D. Future Recovery Estimates 1.) By Asset Category 2.) By Legal Entity III. Consolidated Headcount Plan IV. Claims Resolution Update |
 3 Contents (continued) V. Plan Status Report A. Progress to Date B. Considerations C. Economic Compromise Plan D. Priorities E. Timetable and Objectives |
 4 I. Executive Summary Overall • Highly complex case that has advanced significantly since the last State of the Estate (11/18/09) • Market liquidity continues to improve resulting in more buyers or refinancing sources • Aggressive recovery management strategy continues to enhance ultimate recovery values • 11/09 final Bar date resulted in almost $1.2 Trillion of claims filed • Significant progress has been made in processing and reducing filed claims over the past six months • A proposed joint chapter 11 plan (the “Plan”) was filed in March 2010, followed by a proposed Disclosure Statement in April 2010 (“April 2010 Forecast”) • Creditor differences are narrowing and revised Plan / Disclosure Statement is likely for Q4 2010 |
 5 I. Executive Summary (continued) Asset Recovery Update • Every asset team has revised projected recoveries to higher levels since the last report • Continue to see stabilizing and improving markets that are increasing the value of assets under administration • Employing a reasonable and orderly liquidation strategy, as supported by UCC, emphasizing VALUE CREATION versus IMMEDIATE CASH GENERATION • Worked with the FDIC to restructure Lehman’s bank platforms for optimum liquidation and sale results • Exited 85% or $26 Billion of unfunded revolver liability, and $3.3 Billion of PE/PI unfunded capital commitments, at minimal cost • Where appropriate, pursuing avoidance actions and other litigation to achieve recoveries that will enhance the value of the Debtors’ estates • Generally, experiencing good cooperation from foreign administrators that may result in improved recoveries from foreign assets, and support for a revised Plan • JPMorgan Collateral Disposition Agreement (“CDA”) effective March 2010, has facilitated administration and potential enhancement of value of assets |
 6 I. Executive Summary (continued) Claims Management • Claims filed against LBHI in the amount of $860 Billion by the final Bar date plus claims filed against the subsidiaries of LBHI in the amount of $302 Billion, resulting in total filed claims of almost $1.2 Trillion plus numerous unliquidated claims • Clearly erroneous errors and duplicate claims have been disallowed and a more realistic range of LBHI unsecured claims is estimated at $250-$350 Billion • Although additional analysis remains to be done, an estimate of projected allowed claims is now in process • A Plan approval process may not require final resolution of these claims • The key priority during the last six months has been to focus on the foreign affiliate and foreign third party guarantee claims and related intercompany claims – substantial progress has been made in this area |
 7 I. Executive Summary (continued) |
 8 I. Executive Summary (continued) Plan Progress • Size, complexity and diverse interests and parties made the original timing target for confirmation of the Plan unachievable • Major efforts expended to educate foreign administrators (80+ proceedings, 11+ Official Representatives, multiple jurisdictions) as to relevant issues and, in turn, have them communicate such issues to their constituencies and, also, submit a meaningful response to the Debtors from the foreign administrators • At this time, the Debtors continue to believe this approach of persistent and diligent negotiations is superior to the alternative of expensive and extended litigation • If this approach is unsuccessful the Debtors will not hesitate to pursue other alternatives and if necessary to initiate appropriate litigation • Despite the delay, the Debtors remain optimistic of having confirmation of the Plan by end of Q1 2011 |
 9 II. Asset Recovery Update A. Cash Position B. Cash Flow (Filing to Date) C. Highlights by Asset Category D. Future Recovery Estimates |
 A. Cash and Cash Investment Position at 6/30/10 (a) 10 II. Asset Recovery Update ($ in Millions, foreign currencies reflected in USD equivalents) General Segregated Total Funds Funds (b) Funds Legal Entities LB Holdings Inc. (LBHI) 1,605 $ 470 $ 2,075 $ (c) LB Special Financing Inc. (LBSF) 6,745 610 7,355 (d) Lehman Commercial Paper Inc. (LCPI) 1,037 2,290 3,327 LB Commodity Services Inc. (LBCS) 1,490 41 1,531 LB Financial Products (LBFP) 424 - 424 (d) LB Commercial Corporation (LBCC) 461 5 466 (d) LB Derivative Products (LBDP) 387 - 387 LB OTC Derivatives (LOTC) 239 - 239 Other Debtor Entities 9 2 11 Non-Debtor Entities 3,035 72 3,107 Total Cash and Cash Investments 15,432 3,490 18,922 (e) Cash Collateral - Posted Pre-Petition - 2,209 2,209 (f) (g) Total Cash, Cash Investments, and Cash Collateral 15,432 $ 5,699 $ 21,131 $ Notes: (a) This report includes cash and cash investments managed and reconciled by Lehman's North America, Europe, Asia and South America operations. This report excludes the following: - Cash related to LBI, LBIE and other entities under separate administration; and - Cash held by Aurora Bank, Woodlands Commercial Bank, Lehman Brothers Trust Company N.A., and Lehman Brothers Trust Company of Delaware; (b) Segregated funds primarily include cash segregated per court order, stipulation, or debtors' estimate of funds collected on behalf of secured parties, and cash received from third parties that is pending investigation and may not belong to the Estate. (c) Excludes $87 Million of a court approved advance receivable facility with Aurora Bank. (d) Excludes cash posted as collateral for derivative hedging activity, prior to the recognition of any gains or losses, of $552 Million at LBSF, $25 million at LBCC, $20 Million at LBFP, and $1 million at LBCS. (e) Total cash and cash investments at June 30, 2010 include cash of $1.0 Billion and cash investments of $17.9 Billion. Cash investments include interest-bearing deposits with banks, money market funds, U.S. government obligations and U.S. government guaranteed securities. This balance is based on preliminary closing numbers and is subject to adjustment. (f) Includes $2.2 Billion still held as collateral by Citibank and HSBC that is subject to bank claims primarily for clearing and derivative exposure. (g) Excludes $9.3 Billion believed to be wrongfully taken by JPMorgan ("JPM"), Bank of America ("BOA"), and HSBC. (d) |
 B. Cash Flow: Filing Date to 6/30/10 11 II. Asset Recovery Update (continued) ($ in Millions, foreign currencies reflected in USD equivalents) Sources of Cash Comments Derivatives 11,467 $ Primarily settlements from counterparties Loans 3,929 Primarily principal and interest from corporate borrowers Real Estate 2,165 Primarily principal and interest on real estate loans PE / PI 1,792 Primarily redemptions, distributions and/or proceeds from the sale of investments Other Regions 1,687 Transfers from Lehman entities in Asia and South America Major Assets 2,824 Includes sale of office buildings $1.3BN, Neuberger Berman $685MM, R3 Capital $254MM, Eagle Energy $230MM, and Aviation assets $166MM Minor Other Assets 2,121 Primarily dividend distributions, intercompany loan repayments, return of cash collateral, and other collections in legacy bank accts Total Sources of Cash 25,984 Uses of Cash Reinvestment in Legacy Assets (3,813) Primarily collateral posted for derivative hedging, purchase of open loan trades, preservation of real estate assets, and PEPI capital call funding Operating Expenses / Professional Fees (1,562) Compensation $550MM (including A&M), professional fees $527MM, Transaction Services Agreement $121MM, rent $91MM and other of $273MM Bankhaus Settlement (1,280) Purchase of loans per court-approved settlement Capital Contributions to Subsidiaries (380) Woodlands Bank $200MM and Aurora Bank $180MM Other Disbursements / FX Fluctuation (904) Total Uses of Cash (7,938) Net Cash Flow 18,045 $ Beginning Cash (9/15/08) 2,409 $ Beginning cash balance has been adjusted from the 11/18/09 State of Estate presentation to reflect cash collateral seized by BOA and JPM, adjustments for pre-petition overdraft balances, and inclusion of legacy Europe account balances Net Cash Flow 18,045 Financial Institution Set-Off and Other (1,532) Ending Cash (6/30/10) 18,922 Cash Collateral - Posted Pre-Petition 2,209 Includes $2.2BN still held as collateral by Citibank and HSBC that is subject to bank claims primarily for clearing and derivative exposure Ending Cash and Cash Collateral (6/30/10) 21,131 $ Excludes $9.3BN believed to be wrongfully taken by JPMorgan ("JPM"), Bank of America ("BOA"), and HSBC |
 12 C. Highlights by Asset Category 1.) Loans • Market dynamics have improved • Refinancings are happening ahead of schedule • Overall recoveries are being accelerated • 85% of unfunded revolver commitments, or $26 Billion, have been eliminated at minimal cost • Gross recovery proceed estimates remain unchanged from April 2010 Forecast, but proceeds are being realized earlier • Strategy to rely on an improving liquidity picture has been successful II. Asset Recovery Update (continued) |
 13 C. Highlights by Asset Category 2.) Derivatives • Estimate of gross recovery proceeds has been increased by $850 Million from April 2010 Forecast • Expect to collect $15 Billion from derivatives receivables from all operations under LAMCO supervision • Approximately $11 Billion has been collected through 6/30/10 • LAMCO is using hedging to lock up certain contract values and has posted $400 Million as collateral • Big Bank claim resolution remains a major challenge in 2011 as collections focus is winding down • The Derivative team results have surpassed all expectations and should continue to outperform original targets II. Asset Recovery Update (continued) |
 C. Highlights by Asset Category 3.) Private Equity / Principal Investments • $681 Million collected in 1H 2010 and $950 Million in forecasted collections for full year 2010 • Market conditions for disposition of assets are improving and pricing is better • Cash realization continues to be accelerated from the April 2010 Forecast • Value of the remaining portfolio has increased about 2% since April 2010 Forecast • The LAMCO – PE/PI team has a strong understanding of such assets and the determination of best 14 II. Asset Recovery Update (continued) exit point for converting to cash |
 15 C. Highlights by Asset Category 4.) Real Estate • Market conditions continue to improve with better pricing and accelerated recovery versus the April 2010 Forecast • Gross recovery proceeds have increased by $100 Million+ from April 2010 Forecast • Significant unrecognized upside value exists in certain of the assets if market conditions continue to improve • The LAMCO - Real Estate team has been doing a terrific job on aggressive asset management of its portfolio • Value maximization approach was actively supported by the UCC • Cooperation and joint efforts of the Debtors and UCC are resulting in enhanced recoveries by the Debtors II. Asset Recovery Update (continued) |
 16 II. Asset Recovery Update (continued) |
 17 II. Asset Recovery Update (continued) |
 18 D. Future Recovery Estimates 1.) By Asset Category II. Asset Recovery Update (continued) ($ in Billions) Actual Net Cash Recovery Latest Thinking Plan & Other Amount Forecast (Preliminary) 4/14/10 (a) Adjustments (b) Adjustment 6/30/10 (c) Cash 15.6 $ 5.5 $ - $ 21.1 $ Real Estate 12.1 (0.8) 0.1 11.4 Loans 7.2 (2.0) - 5.2 PE/PI 12.1 (0.9) 0.2 11.4 Derivatives 5.6 (1.8) 0.9 4.7 Banks 1.5 - - 1.5 Foreign Receivables (LBHI) 3.0 - 1.0 4.0 Litigation - - - - Gross Proceeds 57.1 - 2.2 59.3 Reinvestment (d) (1.8) - - (1.8) Net Proceeds (e) 55.3 $ - $ 2.2 $ 57.5 $ Notes: (a) See exhibit 7 to Disclosure Statement dated April 14, 2010 for further details. (b) Other Adjustments include reclassifications to be comparable with the current basis of presentation. (c) Latest Thinking Forecast amounts are preliminary and subject to change. (d) Related to the preservation and recovery enhancement of the Estate's assets. (e) Before operating expenses, litigation costs and professional fees to be paid in the future. |
 19 D. Future Recovery Estimates 2.) By Legal Entity II. Asset Recovery Update (continued) ($ in Billions) Estimated Total Future Preliminary Recovery Cash (a) Proceeds Proceeds (b) LBHI 6.3 $ 9.9 $ 16.2 $ LBSF 7.4 3.3 10.7 LCPI 1.1 8.2 9.3 LBCS 1.5 0.3 1.8 LBCC 0.5 0.2 0.7 Other Debtors 1.1 0.7 1.8 Non-Debtors 3.2 11.6 14.8 Foreign Receivables (LBHI) - 4.0 4.0 Gross Proceeds 21.1 $ 38.2 $ 59.3 $ Reinvestment (c) (1.8) Net Proceeds (d) 57.5 $ Notes: (a) After operating expenses, litigation costs and professional fees paid through 6/30/10. (b) Amounts are preliminary and subject to change. Does not include recoveries from intercompanies with Debtor controlled entities. (c) Related to the preservation and recovery enhancement of the Estate's assets. (d) Before operating expenses, litigation costs and professional fees to be paid in the future. As of June 30, 2010 |
 III. Consolidated Headcount Plan Consolidated Headcount Plan 20 |
  21 III. Consolidated Headcount Plan Lehman A&M Lehman A&M Lehman A&M Lehman A&M LAMCO (a) 331 85 379 69 339 27 (11)% (60)% Administration (b) 117 48 136 62 136 31 0% (50)% Litigation (c) 21 27 19 18 25 8 32% (56)% Total Headcount 469 159 534 149 500 66 (6)% (55)% Notes: (a) (b) (c) Litigation includes Litigation attorneys and Data Mining / Forensics teams. Administration includes Corporate Counsel, Corporate Tax, Finance, Treasury, Human Resources, Corporate Services, Vendor Management, Claims Management and Executive Assistants. % Change 4/01/09 (actual) 4/01/10 (actual) 4/01/11 (projected) 4/01/10 to 4/01/11 LAMCO employees were LBHI employees prior to May 2010. LAMCO includes Derivatives, Loans, Real Estate, Private Equity / Principal Investments, Technology and Risk Management. |
 22 IV. Claims Resolution Update Claims Resolution Update |
 23 IV. Claims Resolution Update Notes: (a) See exhibit 6 to Disclosure Statement dated April 14, 2010 for definitions and details. (b) Subject to final agreement and documentation. (c) Currently $998 Billion of active claims, which excludes expunged or withdrawn claims. ($ in Billions) April 14, 2010 (a) Current ADJUSTED Likely ADJUSTED Likely Claims Outstanding Allowed Outstanding Allowed LBHI: As Filed Claims Claims (b) Claims Claims (b) Direct Claims $210 $183 $102 $112 $112 Intercompany Claims 80 56 43 59 43 Third-Party Guarantee Claims: Domestic 48 21 46 22 International 95 73 72 66 Total Third-Party Guarantee Claims 255 143 94 118 88 Affiliate Guarantee Claims: Domestic 23 8 International 201 66 Total Affiliate Guarantee Claims 315 224 21 74 21 Total Claims Against LBHI 860 605 260 363 264 Total Claims Against All Other Debtors 302 135 135 101 101 Total Claims - LBHI and All Other Debtors $1,162 (c) $740 $395 $464 $365 |
 24 IV. Claims Resolution Update (continued) SUMMARY HIGHLIGHTS • Although not adjudicated, substantial progress has been made in narrowing gross amount of claims from nearly $1.2 Trillion to $464 Billion • Affiliate Guarantee Adjusted Outstanding Claims are projected to decrease by $150 Billion, reflecting efforts made with foreign administrators to address merits of filed claims • Third-Party Guarantee Adjusted Outstanding Claims are projected to decrease by $25 Billion, reflecting analysis of additional information provided by international affiliates • Estimate for Direct Claims reflects an additional reserve of $10 Billion for contingent and unliquidated claims • $43 Billion of Intercompany Claims relating to LBT are subject to bilateral discussions with the stakeholders |
 25 V. Plan Status Report A. Progress to Date B. Considerations C. Economic Compromise Plan D. Priorities E. Timetable and Objectives |
 26 V. Plan Status Report A. Progress to Date September 22, 2009 – Bar Date for Filing Proofs of Claim (a)(b) March 15, 2010 – Filed Proposed Joint Chapter 11 Plan as basis for discussion with parties in interest April 14, 2010 – Filed Proposed Disclosure Statement and Proposed Amended Joint Chapter 11 Plan Since April 14, 2010 the Debtors have met with numerous constituencies (and their respective legal and financial advisors), including, amongst others: -UCC - Foreign Protocol Administrators as a group -LBHI Ad-Hoc - Foreign Administrators on an individual basis -LBSF Ad-Hocs - LBIE - LBT Ad-Hocs - LBI -Numerous other individual creditors and their representatives Notes: (a) October 22, 2009 for Derivative Guarantee Questionnaires. November 2, 2009 for Lehman Program Securities. (b) IRS Bar Date of December 31, 2010. |
 27 V. Plan Status Report (continued) B. Subject Presented By Parties In Interest And Debtors For Consideration (a) Substantive Consolidation (b) Non-Substantive Consolidation (b) • Operated as one company, by business unit, not by legal entity/some subsidiaries had no employees or place of business • Separate subsidiary financial statements, but mostly used internally for financial accounting and tax purposes • Centralized cash management/and reliance based on separate credit analysis is not apparent • Certain LBHI subsidiary creditors assert reliance on double dip claim against subsidiary and LBHI • LBHI Executive Committee responsible for firm-wide strategy, risk, funding, liquidity, operations and products • Asserted sovereign rights of foreign jurisdictions • Global supervisory regulations (CSE program (c) ) were in place • Certain Lehman entities were regulated by applicable laws and rules Notes: (a) Not intended to be comprehensive or limiting in any way. Presented to highlight certain of the issues raised by various parties and under discussion and study. (b) See Section X, A. in Disclosure Statement for a more complete summary. (c) Consolidated Supervised Entity program (“CSE program”) under the SEC. |
 28 V. Plan Status Report (continued) C. Economic Compromise Plan Subsidiary Debtors currently are administered as separate entities for financial reporting and accounting purposes Economic compromise is proposed and embedded in the Plan: • Third-party guarantee claims are limited to estimated third-party liabilities of subsidiaries at the time of filing • Affiliate guarantee claims are limited to maximum allowance of $21.2 Billion • At the core of the Plan construct is the proposal that third party creditors of LBHI subsidiaries should be limited to the benefit of one guarantee claim against LBHI • LBT claim against LBHI is proposed to be compromised to avoid litigation as to the purpose of LBT • As of this date, the foregoing is subject to ongoing negotiations It is the Debtors’ proposal that an economic compromise will reduce time (and costs) that would otherwise be necessary to litigate a myriad of guarantee claims and other issues including substantive consolidation |
 29 V. Plan Status Report (continued) |
 30 V. Plan Status Report (continued) |