Lehman Brothers Holdings Inc Plan Trust (LEHMQ)
Filed: 31 Jul 20, 4:00pm
Exhibit 99.1
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
In re:
Chapter 11 Case No. | ||
| Lehman Brothers Holdings Inc., et al., | 08-13555 | |
Jointly Administered | ||
| Debtors. | ||
QUARTERLY FINANCIAL REPORT
AS OF APRIL 2, 2020
| DEBTORS’ ADDRESS: | LEHMAN BROTHERS HOLDINGS INC. | |
| c/o KRISTINE DICKSON – CHIEF FINANCIAL OFFICER | ||
| 277 PARK AVENUE | ||
| 46th FLOOR | ||
| NEW YORK, NY 10172 | ||
| DEBTORS’ ATTORNEYS: | WEIL, GOTSHAL & MANGES LLP | |
| c/o JACQUELINE MARCUS, GARRETT A. FAIL | ||
| 767 FIFTH AVENUE | ||
| NEW YORK, NY 10153 | ||
| REPORT PREPARER: | LEHMAN BROTHERS HOLDINGS INC., AS PLAN ADMINISTRATOR | |
Date: July 30, 2020
Quarterly Financial Report as of April 2, 2020 (Unaudited)
Table of Contents
I. | Schedule of Debtors | 3 | ||||
II. | Cash Flow Estimates | 4 | ||||
III. | Notes to the Cash Flow Estimates | 10 | ||||
| Note 1 - Basis of Presentation | 10 | |||||
| Note 2 - Other Receipts | 13 | |||||
| Note 3 - Due from/to Non-Controlled Affiliates | 14 | |||||
| Note 4 - Due from/to Debtors and Debtor-Controlled Entities | 18 | |||||
| Note 5 – Disputed Claims | 20 | |||||
| Note 6 – Legal Proceedings | 21 | |||||
| Note 7 – Taxes Payable | 25 | |||||
| Note 8 – Subsequent Events | 26 | |||||
IV. | Balance Sheets | 27 | ||||
QUESTIONS
The Company has established an email address to receive questions from readers regarding this presentation and its other financial disclosures. The Company plans to review questions received, and for those subjects which the Company determines a response would not (i) violate a confidentiality provision, (ii) place the Company in a competitive or negotiation disadvantage, or (iii) be unduly burdensome relative to the value of information requested, the Company shall endeavor to post a response on the website listed below (maintaining the anonymity of the originators of the questions). The Company assumes no obligation to respond to email inquiries.
Please email questions, with document references as relevant, to:
QUESTIONS@lehmanholdings.com
The Company’s previously posted responses can be found on the Epiq website maintained for the Company:
www.lehman-docket.com under the Key Documents tab and the Responses to Questions Submitted category
Page 2
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Quarterly Financial Report as of April 2, 2020 (Unaudited)
| I. | Schedule of Debtors |
The twenty three entities listed below (the “Debtors”) filed for bankruptcy in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) on the dates indicated below. On December 6, 2011, the Bankruptcy Court confirmed the Modified Third Amended Joint Chapter 11 Plan of Lehman Brothers Holdings Inc. and its Affiliated Debtors (the “Plan”). On March 6, 2012, the “Effective Date” (as defined in the Plan) occurred. As of the date hereof, the following Debtors’ chapter 11 cases remain open:
| Case No. | Date Filed (“Commencement Date”) | |||
Lehman Brothers Holdings Inc. (“LBHI”) | 08-13555 | 9/15/2008 | ||
Lehman Brothers Special Financing Inc. (“LBSF”) | 08-13888 | 10/3/2008 |
The following Debtors’ chapter 11 cases were closed in 2016, 2018, 2019 and 2020, pursuant to final decrees entered by the Bankruptcy Court (Docket No. 51920, No. 54163, No. 58257, No. 59472 and No. 60623):
| Case No. | Date Filed | Date Closed | ||||||||||
LB 745 LLC | 08-13600 | 09/16/2008 | 01/28/2016 | |||||||||
PAMI Statler Arms LLC | 08-13664 | 09/23/2008 | 01/28/2016 | |||||||||
CES Aviation LLC | 08-13905 | 10/05/2008 | 01/28/2016 | |||||||||
CES Aviation V LLC | 08-13906 | 10/05/2008 | 01/28/2016 | |||||||||
CES Aviation IX LLC | 08-13907 | 10/05/2008 | 01/28/2016 | |||||||||
LB 2080 Kalakaua Owners LLC | 09-12516 | 04/23/2009 | 01/28/2016 | |||||||||
LB Somerset LLC | 09-17503 | 12/22/2009 | 01/28/2016 | |||||||||
LB Preferred Somerset LLC | 09-17505 | 12/22/2009 | 01/28/2016 | |||||||||
East Dover Limited | 08-13908 | 10/05/2008 | 12/15/2016 | |||||||||
Luxembourg Residential Properties Loan Finance S.a.r.l. | 09-10108 | 01/07/2009 | 12/15/2016 | |||||||||
Merit LLC | 09-17331 | 12/14/2009 | 12/15/2016 | |||||||||
Lehman Brothers Derivative Products Inc. (“LBDP”) | 08-13899 | 10/05/2008 | 06/14/2018 | |||||||||
Lehman Brothers Financial Products Inc. (“LBFP”) | 08-13902 | 10/05/2008 | 06/14/2018 | |||||||||
Lehman Scottish Finance L.P. | 08-13904 | 10/05/2008 | 06/14/2018 | |||||||||
LB Rose Ranch LLC | 09-10560 | 02/09/2009 | 06/14/2018 | |||||||||
Lehman Brothers Commodity Services Inc. (“LBCS”) | 08-13902 | 10/03/2008 | 02/11/2019 | |||||||||
Lehman Brothers Commercial Corporation (“LBCC”) | 08-13901 | 10/05/2008 | 02/11/2019 | |||||||||
Structured Asset Securities Corporation | 09-10558 | 02/09/2009 | 02/11/2019 | |||||||||
Lehman Brothers OTC Derivatives Inc. (“LOTC”) | 08-13893 | 10/03/2008 | 05/04/2020 | |||||||||
Lehman Brothers Commercial Paper Inc. (“LCPI”) | 08-13900 | 10/05/2008 | 05/04/2020 | |||||||||
BNC Mortgage LLC | 09-10137 | 01/09/2009 | 05/04/2020 | |||||||||
Page 3
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Quarterly Financial Report as of April 2, 2020 (Unaudited)
| II. | Cash Flow Estimates |
Lehman Brothers Holdings Inc. & Debtor-Controlled Entities
| ($ in millions) | LBHI As of 12/31/19 | Debtor- Controlled 12.31.19 | LBHI & Debtor- Controlled 12.31.19 | Cash Activity 1/1/20—4/2/20 | Estimate Changes | Transfers, Reclassifications, Adjustments (e) | As of 04/02/20 | |||||||||||||||||||||||||
CASH AND INVESTMENTS | ||||||||||||||||||||||||||||||||
Reserves for Claims | $ | 50 | $ | — | $ | 50 | $ | — | $ | (4 | ) | $ | — | $ | 46 | |||||||||||||||||
Reserves for Operating Expenses, Incentive Fees, and Other | 183 | 17 | 200 | (27 | ) | 24 | (75 | ) | 123 | |||||||||||||||||||||||
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Total Cash & Investments - Restricted | 233 | 17 | 250 | (27 | ) | 20 | (75 | ) | 169 | |||||||||||||||||||||||
Total Cash & Investments - Unrestricted | 23 | 73 | 96 | 72 | (20 | ) | — | 148 | ||||||||||||||||||||||||
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TOTAL CASH AND INVESTMENTS [A] | $ | 256 | $ | 91 | $ | 346 | $ | 46 | $ | — | $ | (75 | ) | $ | 317 | |||||||||||||||||
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CASH FLOW ESTIMATES | ||||||||||||||||||||||||||||||||
Net Receipts | ||||||||||||||||||||||||||||||||
Financial Instruments | $ | 5 | $ | 32 | $ | 36 | $ | (11 | ) | $ | 7 | $ | 6 | $ | 38 | |||||||||||||||||
Other | Note 2 | 74 | 3 | 77 | (4 | ) | (2 | ) | 3 | 74 | ||||||||||||||||||||||
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Sub-Total - Net Receipts | 79 | 34 | 113 | (15 | ) | 5 | 8 | 112 | ||||||||||||||||||||||||
Recoveries From Non-Controlled Affiliates | Note 3 | |||||||||||||||||||||||||||||||
Europe | 319 | 897 | 1,215 | (82 | ) | 12 | 0 | 1,145 | ||||||||||||||||||||||||
Asia | 55 | — | 55 | — | (5 | ) | — | 50 | ||||||||||||||||||||||||
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Sub-Total - Recoveries From Non-Controlled Affiliates | 373 | 897 | 1,270 | (82 | ) | 7 | 0 | 1,195 | ||||||||||||||||||||||||
Recoveries From Controlled Affiliates | ||||||||||||||||||||||||||||||||
Pre-Petition Intercompany Receipts (a) | Note 4 | 114 | (49 | ) | 65 | (62 | ) | 2 | — | 5 | ||||||||||||||||||||||
Net Post-Petition Intercompany Receipts from / (Payables to) (b) | (79 | ) | 82 | 3 | (2 | ) | 1 | — | 2 | |||||||||||||||||||||||
Investments in Affiliates (c) | 959 | (958 | ) | 2 | — | 0 | — | 2 | ||||||||||||||||||||||||
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Sub-Total - Recoveries From Controlled Affiliates | 994 | (924 | ) | 70 | (64 | ) | 4 | — | 9 | |||||||||||||||||||||||
Operating Expenses and Incentive Fees | (121 | ) | (3 | ) | (124 | ) | 27 | (23 | ) | (3 | ) | (123 | ) | |||||||||||||||||||
Estimated Taxes Payable | Note 7 | (34 | ) | (2 | ) | (36 | ) | — | 4 | (5 | ) | (37 | ) | |||||||||||||||||||
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TOTAL CASH FLOW FROM OPERATIONS + OTHER RECEIPTS [B] | $ | 1,291 | $ | 2 | $ | 1,293 | $ | (135 | ) | $ | (3 | ) | $ | 1 | $ | 1,156 | ||||||||||||||||
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OTHER ADJUSTMENTS | ||||||||||||||||||||||||||||||||
(Less): Cash held for the benefit of third parties (d), (e) | $ | (89 | ) | $ | (93 | ) | $ | (182 | ) | $ | — | $ | 71 | $ | 75 | $ | (36 | ) | ||||||||||||||
Plus/(Less): Plan Adjustments from/(to) Participatory Debtors | 7 | — | 7 | (7 | ) | 0 | — | 1 | ||||||||||||||||||||||||
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TOTAL OTHER ADJUSTMENTS [C] | $ | (82 | ) | $ | (93 | ) | $ | (175 | ) | $ | (7 | ) | $ | 71 | $ | 75 | $ | (36 | ) | |||||||||||||
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ESTIMATED CASH AVAILABLE FOR DISTRIBUTIONS [A+B+C] | $ | 1,465 | $ | (0 | ) | $ | 1,465 | $ | (96 | ) | $ | 68 | $ | 1 | $ | 1,438 | ||||||||||||||||
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| (a) | As of April 2, 2020, Debtor-Controlled Entities have been consolidated with LBHI for reporting purposes. |
| (b) | Aurora Commercial Corp. (formerly known as Aurora Bank FSB) (“Aurora”) is a wholly-owned subsidiary of Lehman Brothers Bancorp Inc. (“LBB”), which is a wholly-owned subsidiary of LBHI. As of April 2, 2020, LBHI had an intercompany loan due to Aurora of $69 million. On March 24, 2019, Aurora and its subsidiary Aurora Loan Services (together, the “Aurora Debtors”) filed chapter 11 petitions in the Bankruptcy Court. On March 31, 2020, the Aurora Debtors filed their Joint Plan of Liquidation and the Disclosure Statement related thereto [Docket Nos. 378 and 379]. On May 28, 2020, the Bankruptcy Court confirmed the Modified First Amended Joint Plan of Liquidation for the Aurora Debtors [Docket No. 464]. Additional information and filings in the cases can be found at https://cases.primeclerk.com/Aurora/. |
| (c) | The Company estimates that LBHI will receive approximately $0.8 billion related to Investments in Affiliates, primarily from Lehman Brothers Holdings Scottish LP 2 (“SLP2”). SLP2 is the parent company of Lehman Brothers Holdings Scottish LP 3 (“SLP3”) and is wholly owned by LBHI. Estimate Changes include the impact of movements in foreign exchange rates during the period. |
| (d) | Amounts excluded from Cash Available for Distributions include Distributions on Allowed Claims (not remitted) and other items. |
| (e) | On December 27, 2019, LBHI and LCPI executed a sale and purchase agreement pursuant to which LBHI agreed to purchase LCPI’s remaining assets and certain obligations for total consideration of $63.2 million. On December 20, 2019, LBHI and LBSF executed a sale and purchase agreement pursuant to which LBHI agreed to purchase LBSF’s Allowed Claims into LBHI for total consideration of $17.7 million. These transactions were effective in January 2020. |
Page 4
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Quarterly Financial Report as of April 2, 2020 (Unaudited)
Lehman Brothers Special Financing Inc.
| ($ in millions) | As of 12/31/19 | Cash Activity 1/1/20 - 4/2/20 | Estimate Changes | Transfers, Reclassifications, Adjustments (a) | As of 04/02/20 | |||||||||||||||||||
CASH AND INVESTMENTS | ||||||||||||||||||||||||
Reserves for Claims | $ | 2 | $ | — | $ | 1 | $ | — | 3 | |||||||||||||||
Reserves for Operating Expenses, Incentive Fees, and Other | 7 | (1 | ) | (3 | ) | — | 3 | |||||||||||||||||
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Total Cash & Investments - Restricted | 10 | (1 | ) | (2 | ) | — | 6 | |||||||||||||||||
Total Cash & Investments - Unrestricted | 7 | (23 | ) | 2 | 18 | 4 | ||||||||||||||||||
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TOTAL CASH AND INVESTMENTS [A] | $ | 16 | $ | (24 | ) | $ | — | $ | 18 | 10 | ||||||||||||||
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CASH FLOW ESTIMATES | ||||||||||||||||||||||||
Net Receipts | ||||||||||||||||||||||||
Financial Instruments | $ | 7 | $ | (1 | ) | $ | 0 | $ | — | 7 | ||||||||||||||
Other | Note 2 | 5 | (0 | ) | (2 | ) | (3 | ) | 1 | |||||||||||||||
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Sub-Total - Net Receipts | 12 | (1 | ) | (1 | ) | (3 | ) | 8 | ||||||||||||||||
Recoveries From Non-Controlled Affiliates | Note 3 | |||||||||||||||||||||||
Europe | — | — | — | — | — | |||||||||||||||||||
Asia | — | — | — | — | — | |||||||||||||||||||
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Sub-Total - Recoveries From Non-Controlled Affiliates | — | — | — | — | — | |||||||||||||||||||
Recoveries From Controlled Affiliates | ||||||||||||||||||||||||
Pre-Petition Intercompany Receipts | Note 4 | 17 | (2 | ) | 0 | (15 | ) | — | ||||||||||||||||
Net Post-Petition Intercompany Receipts from / (Payables to) | (1 | ) | — | (1 | ) | — | (3 | ) | ||||||||||||||||
Investments in Affiliates | — | — | — | — | — | |||||||||||||||||||
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Sub-Total - Recoveries From Controlled Affiliates | 16 | (2 | ) | (1 | ) | (15 | ) | (3 | ) | |||||||||||||||
Operating Expenses and Incentive Fees | (8 | ) | 1 | 3 | — | (4 | ) | |||||||||||||||||
Estimated Taxes Payable | Note 7 | — | — | — | — | — | ||||||||||||||||||
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TOTAL CASH FLOW FROM OPERATIONS + OTHER RECEIPTS [B] | $ | 20 | $ | (2 | ) | $ | 1 | $ | (18 | ) | 1 | |||||||||||||
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OTHER ADJUSTMENTS | ||||||||||||||||||||||||
(Less): Cash held for the benefit of third parties | $ | (0 | ) | $ | — | $ | (0 | ) | $ | — | (0 | ) | ||||||||||||
Plus/(Less): Plan Adjustments from/(to) Participatory Debtors | (2 | ) | 2 | (0 | ) | — | (1 | ) | ||||||||||||||||
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TOTAL OTHER ADJUSTMENTS [C] | $ | (2 | ) | $ | 2 | $ | (1 | ) | $ | — | (1 | ) | ||||||||||||
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ESTIMATED CASH AVAILABLE FOR DISTRIBUTIONS [A+B+C] | $ | 34 | $ | (24 | ) | $ | 0 | $ | (0 | ) | 10 | |||||||||||||
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| (a) | On December 20, 2019, LBHI and LBSF executed a sale and purchase agreement pursuant to which LBHI agreed to purchase LBSF’s Allowed Claims into LBHI for total consideration of $17.7 million. This transaction was effective in January 2020, and the proceeds were included in D20. |
Page 5
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Quarterly Financial Report as of April 2, 2020 (Unaudited)
Lehman Commercial Paper Inc.
| ($ in millions) | As of 12/31/19 | Cash Activity 1/1/20 -4/2/20 | Estimate Changes | Transfers, Reclassifications, Adjustments (a) | As of 04/02/20 | |||||||||||||||||||
CASH AND INVESTMENTS | ||||||||||||||||||||||||
Reserves for Claims | $ | 2 | $ | — | $ | (2 | ) | $ | — | $ | 0 | |||||||||||||
Reserves for Operating Expenses, Incentive Fees, and Other | 3 | — | (3 | ) | — | — | ||||||||||||||||||
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Total Cash & Investments - Restricted | 4 | — | (4 | ) | — | 0 | ||||||||||||||||||
Total Cash & Investments - Unrestricted | 2 | (64 | ) | 4 | 57 | — | ||||||||||||||||||
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TOTAL CASH AND INVESTMENTS [A] | $ | 7 | $ | (64 | ) | $ | — | $ | 57 | 0 | ||||||||||||||
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CASH FLOW ESTIMATES | ||||||||||||||||||||||||
Net Receipts | ||||||||||||||||||||||||
Financial Instruments | $ | 6 | $ | (0 | ) | $ | 0 | $ | (6 | ) | — | |||||||||||||
Other | Note 2 | — | (0 | ) | 0 | — | — | |||||||||||||||||
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Sub-Total - Net Receipts | 6 | (0 | ) | 0 | (6 | ) | — | |||||||||||||||||
Recoveries From Non-Controlled Affiliates | Note 3 | |||||||||||||||||||||||
Europe | 0 | — | — | (0 | ) | — | ||||||||||||||||||
Asia | — | — | — | — | — | |||||||||||||||||||
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Sub-Total - Recoveries From Non-Controlled Affiliates | 0 | — | — | (0 | ) | — | ||||||||||||||||||
Recoveries From Controlled Affiliates | ||||||||||||||||||||||||
Pre-Petition Intercompany Receipts | Note 4 | 57 | — | (0 | ) | (57 | ) | — | ||||||||||||||||
Net Post-Petition Intercompany Receipts from / (Payables to) | (2 | ) | 2 | 0 | — | 0 | ||||||||||||||||||
Investments in Affiliates | 1 | — | — | (1 | ) | — | ||||||||||||||||||
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Sub-Total - Recoveries From Controlled Affiliates | 56 | 2 | (0 | ) | (58 | ) | 0 | |||||||||||||||||
Operating Expenses and Incentive Fees | (3 | ) | — | — | 3 | — | ||||||||||||||||||
Estimated Taxes Payable | Note 7 | (5 | ) | — | — | 5 | — | |||||||||||||||||
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TOTAL CASH FLOW FROM OPERATIONS + OTHER RECEIPTS [B] | $ | 54 | $ | 2 | $ | 0 | $ | (56 | ) | 0 | ||||||||||||||
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OTHER ADJUSTMENTS | ||||||||||||||||||||||||
(Less): Cash held for the benefit of third parties | $ | (1 | ) | $ | — | $ | 1 | $ | — | (0 | ) | |||||||||||||
Plus/(Less): Plan Adjustments from/(to) Participatory Debtors | (5 | ) | 5 | (0 | ) | — | — | |||||||||||||||||
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TOTAL OTHER ADJUSTMENTS [C] | $ | (6 | ) | $ | 5 | $ | 1 | $ | — | (0 | ) | |||||||||||||
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ESTIMATED CASH AVAILABLE FOR DISTRIBUTIONS [A+B+C] | $ | 55 | $ | (57 | ) | $ | 1 | $ | 1 | 0 | ||||||||||||||
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| (a) | On December 27, 2019, LBHI and LCPI executed a sale and purchase agreement pursuant to which LBHI agreed to purchase LCPI’s remaining assets and certain obligations for total consideration of $63.2 million. This transaction was effective in January 2020, and the proceeds were included in D20. |
The Bankruptcy Court entered the final decree to close the bankruptcy case for Lehman Commercial Paper Inc. on May 4, 2020 (Docket No. 60623).
Page 6
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Quarterly Financial Report as of April 2, 2020 (Unaudited)
Lehman Brothers OTC Derivatives Inc.
| ($ in millions) | As of 12/31/19 | Cash Activity 1/1/20 -4/2/20 | Estimate Changes | Transfers, Reclassifications, Adjustments | As of 04/02/20 | |||||||||||||||||||
CASH AND INVESTMENTS | ||||||||||||||||||||||||
Reserves for Claims | $ | — | $ | — | $ | 0 | $ | — | $ | 0 | ||||||||||||||
Reserves for Operating Expenses, Incentive Fees, and Other | 0 | — | (0 | ) | — | — | ||||||||||||||||||
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Total Cash & Investments - Restricted | 0 | — | (0 | ) | — | 0 | ||||||||||||||||||
Total Cash & Investments - Unrestricted | 0 | (0 | ) | 0 | — | 0 | ||||||||||||||||||
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TOTAL CASH AND INVESTMENTS [A] | $ | 0 | $ | (0 | ) | $ | — | $ | — | $ | 0 | |||||||||||||
CASH FLOW ESTIMATES | ||||||||||||||||||||||||
Net Receipts | ||||||||||||||||||||||||
Financial Instruments | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | |||||||||
Other | Note 2 | — | — | — | — | — | ||||||||||||||||||
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Sub-Total - Net Receipts | — | — | — | — | — | |||||||||||||||||||
Recoveries From Non-Controlled Affiliates | Note 3 | |||||||||||||||||||||||
Europe | — | — | — | — | — | |||||||||||||||||||
Asia | — | — | — | — | — | |||||||||||||||||||
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Sub-Total - Recoveries From Non-Controlled Affiliates | — | — | — | — | — | |||||||||||||||||||
Recoveries From Controlled Affiliates | ||||||||||||||||||||||||
Pre-Petition Intercompany Receipts | Note 4 | — | — | — | — | — | ||||||||||||||||||
Net Post-Petition Intercompany Receipts from / (Payables to) | (0 | ) | 0 | — | — | — | ||||||||||||||||||
Investments in Affiliates | — | — | — | — | — | |||||||||||||||||||
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Sub-Total - Recoveries From Controlled Affiliates | (0 | ) | 0 | — | — | — | ||||||||||||||||||
Operating Expenses and Incentive Fees | — | — | — | — | — | |||||||||||||||||||
Estimated Taxes Payable | Note 7 | — | — | — | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
TOTAL CASH FLOW FROM OPERATIONS + OTHER RECEIPTS [B] | $ | (0 | ) | $ | 0 | $ | — | $ | — | $ | — | |||||||||||||
OTHER ADJUSTMENTS | ||||||||||||||||||||||||
(Less): Cash held for the benefit of third parties | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||
Plus/(Less): Plan Adjustments from/(to) Participatory Debtors | — | — | — | — | — | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
TOTAL OTHER ADJUSTMENTS [C] | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||
ESTIMATED CASH AVAILABLE FOR DISTRIBUTIONS [A+B+C] | $ | (0 | ) | $ | 0 | $ | — | $ | — | $ | 0 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
The Bankruptcy Court entered the final decree to close the bankruptcy case for Lehmann Brothers OTC Derivatives Inc. on May 4, 2020 (Docket No. 60623).
Page 7
| ||||
Quarterly Financial Report as of April 2, 2020 (Unaudited)
BNC Mortgage LLC
| ($ in millions) | As of 12/31/19 | Cash Activity 1/1/20 -4/2/20 | Estimate Changes | Transfers, Reclassifications, Adjustments | As of 04/02/20 | |||||||||||||||||||
CASH AND INVESTMENTS | ||||||||||||||||||||||||
Reserves for Claims | $ | 0 | $ | — | $ | (0 | ) | $ | — | $ | — | |||||||||||||
Reserves for Operating Expenses, Incentive Fees, and Other | 0 | — | (0 | ) | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total Cash & Investments - Restricted | 0 | — | (0 | ) | — | — | ||||||||||||||||||
Total Cash & Investments - Unrestricted | 2 | 0 | 0 | — | 2 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
TOTAL CASH AND INVESTMENTS [A] | $ | 2 | $ | 0 | $ | — | $ | — | $ | 2 | ||||||||||||||
|
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|
|
|
|
|
|
| |||||||||||||||
CASH FLOW ESTIMATES | ||||||||||||||||||||||||
Net Receipts | ||||||||||||||||||||||||
Financial Instruments | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||
Other | Note 2 | — | — | — | — | — | ||||||||||||||||||
|
|
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|
|
|
|
|
|
| |||||||||||||||
Sub-Total - Net Receipts | — | — | — | — | — | |||||||||||||||||||
Recoveries From Non-Controlled Affiliates | Note 3 | |||||||||||||||||||||||
Europe | — | — | — | — | — | |||||||||||||||||||
Asia | — | — | — | — | — | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Sub-Total - Recoveries From Non-Controlled Affiliates | — | — | — | — | — | |||||||||||||||||||
Recoveries From Controlled Affiliates | ||||||||||||||||||||||||
Pre-Petition Intercompany Receipts | Note 4 | — | — | — | — | — | ||||||||||||||||||
Net Post-Petition Intercompany Receipts from / (Payables to) | 0 | — | (0 | ) | — | 0 | ||||||||||||||||||
Investments in Affiliates | — | — | — | — | — | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Sub-Total - Recoveries From Controlled Affiliates | 0 | — | (0 | ) | — | 0 | ||||||||||||||||||
Operating Expenses and Incentive Fees | — | — | — | — | — | |||||||||||||||||||
Estimated Taxes Payable | Note 7 | — | — | — | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
TOTAL CASH FLOW FROM OPERATIONS + OTHER RECEIPTS [B] | $ | 0 | $ | — | $ | (0 | ) | $ | — | $ | 0 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
OTHER ADJUSTMENTS | ||||||||||||||||||||||||
(Less): Cash held for the benefit of third parties | $ | (0 | ) | $ | — | $ | 0 | $ | — | $ | — | |||||||||||||
Plus/(Less): Plan Adjustments from/(to) Participatory Debtors | — | — | — | — | — | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
TOTAL OTHER ADJUSTMENTS [C] | $ | (0 | ) | $ | — | $ | 0 | $ | — | $ | — | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
ESTIMATED CASH AVAILABLE FOR DISTRIBUTIONS [A+B+C] | $ | 2 | $ | 0 | $ | 0 | $ | — | $ | 2 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
The Bankruptcy Court entered the final decree to close the bankruptcy case for BNC Mortgage LLC on May 4, 2020 (Docket No. 60623).
Page 8
| ||||
Quarterly Financial Report as of April 2, 2020 (Unaudited)
Estimated Remaining Creditor Recoveries, By Debtor
The following schedules show the estimated remaining recoveries for each of LBHI and LBSF by claim class, based on the “Estimated Cash Available for Distributions” in the preceding tables. The estimated remaining recoveries on the previous pages and the schedules below do not include (a) potential recoveries from the Excluded Litigations, and (b) estimates for potential allowed amounts of disputed claims.
($ in millions)
Lehman Brothers Holdings Inc.
| Allowed Claims Eligible for Distributions (1) | Estimated Remaining Recovery | Estimated Remaining Recovery % as of 04.02.2020 | Actual Recovery % Thru D20 | Estimated End of Case Recovery % | ||||||||||||||||||
Class | Designation | $ | $ | A | B | = A + B | ||||||||||||||||
3 | Senior Unsecured | $ | 82,542 | $ | 737 | 0.893 | % | 46.049 | % | 46.942 | % | |||||||||||
4A | Senior Affiliate Claims | 33,571 | 267 | 0.797 | % | 37.052 | % | 37.848 | % | |||||||||||||
4B | Senior Affiliate Guarantee | 10,463 | 82 | 0.779 | % | 36.154 | % | 36.933 | % | |||||||||||||
5 | Senior Third-Party Guarantee | 31,707 | 198 | 0.623 | % | 28.928 | % | 29.551 | % | |||||||||||||
7 | General Unsecured | 5,242 | 43 | 0.829 | % | 43.113 | % | 43.941 | % | |||||||||||||
8 | Derivative Affiliate / Affiliate Guarantee Claims | 451 | 3 | 0.732 | % | 34.041 | % | 34.773 | % | |||||||||||||
9A | Third Party Guarantee Derivatives | 18,261 | 107 | 0.586 | % | 27.230 | % | 27.816 | % | |||||||||||||
9B | Third Party Guarantee Derivatives RACER’s | — | — | 0.356 | % | 16.555 | % | 16.911 | % | |||||||||||||
10A | Subordinated Class 10A Claims | 3,399 | — | — | — | — | ||||||||||||||||
10B | Subordinated Class 10B Claims | 10,330 | — | — | — | — | ||||||||||||||||
10C | Subordinated Class 10C Claims | 1,493 | — | — | — | — | ||||||||||||||||
|
|
|
| |||||||||||||||||||
| Total | $ | 197,460 | $ | 1,438 | ||||||||||||||||||
|
|
|
| |||||||||||||||||||
Lehman Brothers Special Financing Inc.
| Allowed Claims Eligible for Distributions (1) | Estimated Remaining Recovery | Estimated Remaining Recovery % as of 04.02.2020 | Actual Recovery % Thru D20 | Estimated End of Case Recovery % | ||||||||||||||||||
Class | Designation | $ | $ | A | B | = A + B | ||||||||||||||||
4A | GUC not Designated Entities | $ | 19,675 | $ | 5 | 0.025 | % | 40.365 | % | 40.391 | % | |||||||||||
4B | GUC Designated Entities | 1,948 | 0 | 0.013 | % | 20.467 | % | 20.480 | % | |||||||||||||
5A | Affiliate Claims of LBHI | 15,173 | 4 | 0.027 | % | 40.954 | % | 40.981 | % | |||||||||||||
5B | Affiliate Claims of Participating Subs | 522 | 0 | 0.022 | % | 33.650 | % | 33.671 | % | |||||||||||||
5C | Affiliate claims | 1,689 | 0 | 0.025 | % | 39.864 | % | 39.890 | % | |||||||||||||
|
|
|
| |||||||||||||||||||
| Total | $ | 39,006 | $ | 10 | ||||||||||||||||||
|
|
|
| |||||||||||||||||||
| (1) | Estimated Recovery percentages are calculated based on recoveries of Allowed Claims Eligible for Distributions as reported on Exhibit D of the 20th Distribution Notice filed on March 26, 2020 [Docket No. 60487]. For purposes of this illustrative calculation only: |
| a. | Allowed claims exclude (i) claims against LBHI satisfied in full through the combination of the primary obligor and guarantee distributions from LBHI, and (ii) previously Allowed Claims that have been withdrawn. |
| b. | Disputed claims are assumed to be allowed at zero, and all cash reserves currently held on behalf of holders of disputed claims are assumed to be released for the benefit of all holders of Allowed Claims. |
| c. | Allowed Claims Eligible for Distributions exclude Allowed Claims that each Debtor owns against itself. |
| (2) | Through D20, the Debtors have made distributions to creditors totaling $128.1 billion, of which $95.2 billion were payments on account of claims owned or formerly owned by third party creditors. |
Page 9
| ||||
Quarterly Financial Report as of April 2, 2020 (Unaudited)
III. Notes to the Cash Flow Estimates
Note 1 – Basis of Presentation
Objectives
On the Effective Date, the Plan became effective and the Debtors emerged from bankruptcy with a new Board of Directors (LBHI’s Board of Directors hereinafter referred to as the “Board”). The Company continues to pursue the objectives of asset value maximization and timely distributions to creditors of available cash through the optimal execution of an orderly wind down process and the judicious and timely resolution of claims. Pursuant to the Plan, the Plan Administrator has made and expects to continue to make distributions to creditors of Debtors, with each entity subject to review at each distribution date.
Basis of Presentation
The information and data included in the Quarterly Financial Report, including the Notes to the Cash Flow Estimates (the “Quarterly Financial Report”) are derived from sources available to the Debtors and Debtor-Controlled Entities (collectively, the “Company” or “Controlled Affiliates”). The term “Debtor-Controlled Entities” refers to those entities that are directly or indirectly controlled by LBHI and have not filed for protection under Chapter 11 of the Bankruptcy Code. Debtor-Controlled Entities excludes, among others, certain entities (such as Lehman Brothers Inc. (“LBI”) and Lehman Brothers International (Europe) (in administration) (“LBIE”)) that were not managed or controlled by a Debtor as of the Effective Date and are under separate administrations in the U.S. or abroad, including proceedings under the Securities Investor Protection Act (collectively, “Non-Controlled Affiliates”).
The information and data included in these cash flow estimates and notes thereto (the “April 2, 2020 Cash Flow Estimates”) were prepared to update the December 31, 2019 Cash Flow Estimates filed March 26, 2020 (the “December 31, 2019 CFE”), and are based on estimated cash flows from assets managed in an orderly wind down and/or sale (and related costs of operations) until the Company’s activities are fully resolved.
These April 2, 2020 Cash Flow Estimates include an estimate of expenses to be paid through final termination of the Company on such matters as asset disposition, litigation and disputed claims resolution, administrative wind-down, and related activities. These estimates also include the estimated costs of a small subset of the Company’s current staff committed to stay for many years, if necessary, to oversee the resolution of remaining disputes, other matters and residual wind down activities. These estimates are subject to ongoing review and revision. Actual expenses may differ materially from these estimates.
The Company has prepared the Quarterly Financial Report based on the information available to the Company at the date of filing; however, such information may be incomplete and may be materially deficient. Material uncertainties continue to exist regarding the ultimate value realizable from the Company’s assets, the timing of asset recoveries, future costs, and the eventual level of allowed creditors’ claims. Accordingly, the Quarterly Financial Report is not meant to be relied upon as a complete description of the Company, its business, condition (financial or otherwise), results of operations, prospects, assets or liabilities. The Company reserves all rights to revise this report.
In preparing the Quarterly Financial Report, the Company made various estimates and assumptions based on information available to the Company. As such, this report contains forward-looking statements that involve known and unknown risks, uncertainties and other factors which may cause the Company’s actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including all statements containing information regarding the intent, belief or current expectation of the Company and members of its management. Accordingly, the financial information herein is subject to change and any such change may be material.
Page 10
| ||||
Quarterly Financial Report as of April 2, 2020 (Unaudited)
Note 1 – Basis of Presentation (continued)
The Quarterly Financial Report should be read in conjunction with the Company’s previous filings, including Form 8-K reports as filed with the United States Securities and Exchange Commission (“SEC”), the Plan and related Disclosure Statement (the “Disclosure Statement”) dated August 31, 2011, and other documents filed after the Commencement Dates with various regulatory agencies or the Bankruptcy Court by LBHI, other Debtors and Debtor-Controlled Entities.
Future expenses and distributions are dependent in large measure on the resolution of various legal matters involving the Company and its Non-Controlled Affiliates. (See Litigation below.) The remaining legal matters require resolution in the United States, as well as multiple foreign jurisdictions, including the United Kingdom, France, Germany, India, and Australia. The timing for achieving final administrative or judicial resolution of these legal issues is uncertain. As a consequence, the Company cannot definitively specify a date for the final termination of its activities.
All cash flows in these Estimates are presented on an undiscounted basis.
Key Assumptions
Recoveries from Non-Controlled Affiliates
Estimates of recoveries from Non-Controlled Affiliates are based on internal valuation models utilizing information obtained from both Non-Controlled Affiliates’ fiduciaries, as well as information obtained by the Company through settlement negotiations and involvement on creditors’ committees.
The Company’s estimates for recoveries from Non-Controlled Affiliates include estimates for recoveries related to LBIE and the Joint Venture (see Note 3 for additional information), as well as estimated recoveries from other Non-Controlled Affiliates in Europe and Asia.
Certain receivables from Non-Controlled Affiliates are denominated in foreign currencies, and as such, estimated recoveries related to these receivables are subject to movements in foreign exchange rates. The Company does not hedge against movements in foreign exchange rates.
The majority of estimated remaining recoveries from Non-Controlled Affiliates are contingent upon (i) the resolution of matters in dispute and/or active litigation, (ii) the receipt of non-U.S. government and/or Court approvals, and/or (iii) the final wind down of estates not controlled by the Plan Administrator. As such, the timing and amount of future recoveries from Non-Controlled Affiliates is uncertain, and actual recoveries may differ materially from these estimates.
Litigation
The Company is involved directly and/or indirectly in numerous litigations that will impact its recoveries from Non-Controlled Affiliates. The Company’s estimates of recoveries from Non-Controlled Affiliates incorporate the Company’s current assumptions regarding the resolution of these matters (see Other Litigations in Note 6 for additional information).
In addition, the Company has certain litigation pending against parties other than Non-Controlled Affiliates in U.S. courts which may result in potential recoveries to the Company. For the purpose of these April 2, 2020 Cash Flow Estimates, estimates for all litigations are included, with the exception of matters listed under “Excluded Litigations” in Note 6 herein (“Excluded Litigations”). The estimated costs (i.e., professional, legal and advisory fees) of supporting all of the Company’s litigations, including the Excluded Litigations, are included.
Intercompany Recoveries Among Controlled Entities
The April 2, 2020 Cash Flow Estimates reflect the following in the calculation of intercompany recoveries between and among Debtors and Debtor-Controlled Entities:
| • | Allowed Claims as of April 2, 2020; |
| • | Unresolved third party claims as of April 2, 2020 are estimated at zero; and |
| • | Equity distributions from Debtors and Debtor-Controlled Entities. |
Page 11
| ||||
Quarterly Financial Report as of April 2, 2020 (Unaudited)
Note 1 – Basis of Presentation (continued)
Reporting of Claim Assignments
As part of the Company’s planned operational wind down and legal entity dissolution process, the Company has assigned and will continue to assign claims among Controlled Entities, typically from a subsidiary entity to a parent entity, with no resulting economic effect on estimated overall recoveries. These assignments are reflected in the “Transfers, Reclassifications, Adjustments” column in the tables herein. For claim assignments in which Debtor entities are assigned claims against themselves (i.e., when LBHI is assigned a claim against LBHI), the receivables and payables are netted.
This Quarterly Financial Report:
| • | Reflects activities through April 2, 2020, including the twentieth Plan Distribution (“D20”); |
| • | Is not audited nor prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”); |
| • | Includes certain items that remain under continuing review by the Company and may be accounted for differently in future Quarterly Financial Reports. |
Due from/to Affiliates (as shown in the Balance Sheets and Note 3 and Note 4 herein)
Due from/to Affiliates represents (i) receivables related to transactions among Debtors, Debtor-Controlled Entities and Non-Controlled Affiliates (separately or collectively, “Affiliates”), and (ii) payables by Debtor-Controlled Entities to Debtors and Non-Controlled Affiliates. Certain balances are reflected in “Due from” and “Due to” as a result of the assignments of claims against the Debtor and therefore are not netted.
Due from/to Affiliates are recorded in the Balance Sheets at book values, and where applicable, these balances are recorded net of cash distributions. The balances do not reflect potential realization or collectability reserves for Due from Affiliates balances nor estimates of potential additional payables to Affiliates. As a result, adjustments (including write-downs and write-offs) to Due from/to Affiliates, which are material, will be recorded in the future. The Company will continue to review future estimated recoveries from Non-Controlled Affiliates to determine future write downs.
Page 12
| ||||
Quarterly Financial Report as of April 2, 2020 (Unaudited)
Note 2 – Other Receipts
The following table summarizes the main components of Other Receipts as of April 2, 2020:
| Debtors | Debtor- | |||||||||||
$ in millions | LBHI | LBSF | Controlled Entities | |||||||||
Affiliate Claims (1) | 71 | — | 0 | |||||||||
Other | 1 | 1 | 3 | |||||||||
Note: Totals may not foot due to rounding.
| (1) | Includes $71 million of claims, marked at estimated recovery values, against Non-Controlled Affiliates acquired through settlements with third parties valued at estimated recoveries, net of distributions. The largest component of Affiliate Claims is an admitted claim, prior to distributions, against Lehman Brothers Limited for £66 million. |
Page 13
| ||||
Quarterly Financial Report as of April 2, 2020 (Unaudited)
Note 3 – Due from/to Non-Controlled Affiliates
The following table presents, on an aggregate basis for LBHI and Debtor-Controlled Entities, admitted claims (including statutory interest to date), collections to date from Non-Controlled Affiliates, and aggregate estimated remaining recoveries (including statutory interest):
| Estimated Recoveries (4) | ||||||||||||||||||||||||||||
$ in millions | Local Currency | Admitted Claims in Local Currency (2) | Collections To Date in Local Currency (2) | Admitted and Unsettled Filed Claims in USD (3) | Collections To Date in USD (2) | Net Receivables in USD | LBHI & Debtor- Controlled Entities | |||||||||||||||||||||
Europe | ||||||||||||||||||||||||||||
Lehman Brothers Finance S.A. | CHF | 10,153 | (2,087 | ) | 10,421 | (2,142 | ) | 8,280 | ||||||||||||||||||||
Lehman Brothers Holdings Intermediate 2 Ltd | GBP | 871 | (871 | ) | 1,873 | (1,080 | ) | 793 | ||||||||||||||||||||
Thayer Properties Limited | GBP | 172 | (92 | ) | 213 | (115 | ) | 98 | ||||||||||||||||||||
LB (PTG) Ltd | GBP | 170 | (91 | ) | 211 | (112 | ) | 98 | ||||||||||||||||||||
LB ODC 3 | GBP | 101 | (62 | ) | 125 | (77 | ) | 49 | ||||||||||||||||||||
Other | 2,293 | (2,251 | ) | 42 | ||||||||||||||||||||||||
Recoveries of Prior Guarantee Distributions (1) | — | — | — | |||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total Europe | 15,136 | (5,776 | ) | 9,360 | 1,145 | |||||||||||||||||||||||
Asia | ||||||||||||||||||||||||||||
LB Commercial Corp. Asia Limited | HKD | 14,769 | (9,118 | ) | 1,905 | (1,176 | ) | 729 | ||||||||||||||||||||
LB Asia Pacific (Singapore) PTE | USD | 621 | (364 | ) | 621 | (364 | ) | 258 | ||||||||||||||||||||
LB Investments PTE Ltd | USD | 536 | (342 | ) | 536 | (342 | ) | 194 | ||||||||||||||||||||
LB RE Australia Commerical PTY LTD | AUD | 218 | (66 | ) | 132 | (40 | ) | 92 | ||||||||||||||||||||
LB Australia Holdings PTY LTD | AUD | 145 | (63 | ) | 88 | (38 | ) | 50 | ||||||||||||||||||||
Lehman Brothers Australia Ltd | AUD | 111 | (66 | ) | 67 | (40 | ) | 27 | ||||||||||||||||||||
Other | 11,082 | (11,045 | ) | 37 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total Asia | 14,433 | (13,046 | ) | 1,387 | 50 | |||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total | $ | 29,569 | $ | (18,821 | ) | $ | 10,747 | $ | 1,195 | |||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Totals may not foot due to rounding
| (1) | The Company’s Estimated Recoveries include estimates for recoveries related to prior distributions on Allowed Guarantee Claims against LBHI that are or are expected to be satisfied in full. |
| (2) | “Admitted Claims in Local Currency,” “Collections to Date in Local Currency” and “Collections to Date in USD” include statutory interest received to date less any distributions received on the claims prior to the assignments of the claims to LBHI and/or Debtor-Controlled Entities. |
| (3) | “Admitted and Unsettled Filed Claims in USD” includes estimated recoveries on subordinated receivables and statutory interest. |
| (4) | Refer to Note 1 – Basis of Presentation herein for further information on the estimated recoveries from Non-Controlled Affiliates. |
| (5) | Other claims against Lehman Brothers Finance S.A., Bankhaus, and LBIE acquired through settlements with third parties are included in Other Assets (refer to Note 2 – Other Receipts for additional information). |
Page 14
| ||||
Quarterly Financial Report as of April 2, 2020 (Unaudited)
Note 3 – Due from/to Non-Controlled Affiliates (continued)
The table below presents the Due from/to Non-Controlled Affiliates balances as of April 2, 2020, and the related activity since the previously filed Quarterly Financial Report as of December 31, 2019:
| Activity 01/01/20 - 04/02/20 | ||||||||||||||||||||||||
| $ in millions | As of December 31, 2019 | Cash Receipts | Cash Distributions | Claim Assignments | Other (1) | As of April 2, 2020 | ||||||||||||||||||
Due From Non-Controlled | ||||||||||||||||||||||||
Debtors: | ||||||||||||||||||||||||
Lehman Brothers Holdings Inc. | $ | 10,136 | $ | (82 | ) | $ | — | $ | 0 | $ | (112 | ) | $ | 9,943 | ||||||||||
Lehman Commercial Paper Inc. | 1 | — | (0 | ) | (0 | ) | 0 | |||||||||||||||||
Lehman Brothers Special Financing Inc. | (0 | ) | — | — | 0 | (0 | ) | |||||||||||||||||
Debtor-Controlled | 818 | — | — | (14 | ) | 804 | ||||||||||||||||||
Due To Non-Controlled (2) | ||||||||||||||||||||||||
Debtors: | ||||||||||||||||||||||||
Lehman Brothers Holdings Inc. | $ | 28,885 | $ | — | $ | (23 | ) | $ | — | $ | — | $ | 28,861 | |||||||||||
Lehman Commercial Paper Inc. | 435 | — | (5 | ) | — | (429 | ) | — | ||||||||||||||||
Lehman Brothers Special Financing Inc. | 772 | — | (1 | ) | (0 | ) | (0 | ) | 770 | |||||||||||||||
Debtor-Controlled | 29 | — | — | 1 | 0 | 30 | ||||||||||||||||||
| (1) | Other includes (i) the write-off of $429 million related to the closing of LCPI’s bankruptcy case, and (ii) $154 million resulting from the negative impact of movements in foreign exchange rates for the period calculated on the historical net receivable balances. |
| (2) | “Due to Non-Controlled” balances from Debtors are included in Liabilties Subject to Compromise herein. |
Page 15
| ||||
Quarterly Financial Report as of April 2, 2020 (Unaudited)
Note 3 – Due from/to Non-Controlled Affiliates (continued)
The following table presents a summary of Due from/to Non-Controlled Affiliates balances as of April 2, 2020:
| LBHI | LBSF | Debtor-Controlled Entities | ||||||||||||||||||||||
$ in millions | Due from | Due to | Due from | Due to | Due from | Due to | ||||||||||||||||||
Europe | ||||||||||||||||||||||||
Lehman Brothers Treasury Co B.V. (1) | $ | — | $ | (12,351 | ) | $ | — | $ | — | $ | — | $ | — | |||||||||||
Lehman Brothers Finance S.A. | 8,280 | (670 | ) | — | — | — | — | |||||||||||||||||
Thayer Properties Limited | 98 | — | — | — | — | — | ||||||||||||||||||
LB (PTG) Ltd | 98 | — | — | — | — | — | ||||||||||||||||||
Lehman Brothers Limited | 1 | (232 | ) | — | (2 | ) | — | (0 | ) | |||||||||||||||
Lehman Brothers International (Europe) (2) | 37 | (650 | ) | — | (518 | ) | — | (1 | ) | |||||||||||||||
Eldon Street Holdings Limited | — | (19 | ) | — | — | — | — | |||||||||||||||||
LB Holdings Intermediate 2 Ltd | — | (196 | ) | — | — | 793 | — | |||||||||||||||||
Wood Street Investments Ltd | — | (174 | ) | — | — | — | — | |||||||||||||||||
Storm Funding Ltd | (0 | ) | (113 | ) | — | (3 | ) | — | — | |||||||||||||||
Asia | ||||||||||||||||||||||||
LB Commercial Corp. Asia Limited | 729 | — | — | — | — | — | ||||||||||||||||||
LB Asia Pacific (Singapore) PTE | 258 | — | — | — | — | — | ||||||||||||||||||
LB Investments PTE Ltd | 194 | — | — | — | — | — | ||||||||||||||||||
Other | ||||||||||||||||||||||||
Claims held by third parties (3) | — | (14,385 | ) | — | (180 | ) | — | — | ||||||||||||||||
Other | 248 | (71 | ) | (0 | ) | (67 | ) | 11 | (28 | ) | ||||||||||||||
| (1) | LBT is included in the defined term “Non-Controlled Affiliates,” but LBHI has no direct or indirect equity interest in LBT. |
| (2) | LBHI owns allowed claims against LBIE in the aggregate face amount of £646 million. |
| (3) | “Claims held by third parties” represent claims against Debtors, net of distributions, originally held by Non-Controlled Affiliates, according to their respective settlement agreements with the Company, that are currently held by third parties. |
Page 16
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Quarterly Financial Report as of April 2, 2020 (Unaudited)
Note 3 – Due from/to Non-Controlled Affiliates (continued)
Joint Venture to Facilitate Resolution of LBIE Claims
On January 31, 2014, Lehman Brothers Holdings Intermediate 2 Ltd. (“LBHI2”), a Non-Controlled Affiliate, LBHI, and Elliott Management Corporation and King Street Capital Management, L.P. (together, the “Funds”) entered into definitive documentation and consummated a joint venture to facilitate the resolution of LBIE claims (the “Joint Venture”):
| • | LBHI2 contributed to the Joint Venture its admitted senior claim of GBP 36.3 million (“Senior Claim”), subordinated claims of GBP 1.24 billion (“Sub Debt”), and an economic interest in its preferred equity (“Preferred Equity”) in LBIE. |
| • | The Funds paid approximately GBP 650 million to LBHI2 (by way of a capital contribution to the Joint Venture) and contributed to the Joint Venture the distributions on their claims against LBIE (approximately GBP 2.6 billion face as of January 31, 2014) in excess of the principal amount plus post-administration interest at 8% per year. LBHI2’s final recoveries and distributions will be determined following the resolution of the LBIE estate. |
The Joint Venture includes a joint recovery pool governed by a specific sharing formula. Subject to certain adjustments, which could be material, all recoveries from the Sub Debt, Senior Claim, Preferred Equity, and the Funds’ contribution are split as follows:
| (a) | 100% to the Funds up to the Tier 1 Pool Threshold Amount; |
| (b) | For recoveries between the Tier 1 Pool Threshold Amount up to the Tier 2 Pool Threshold Amount, 70% to the Funds and 30% to LBHI2; |
| (c) | For recoveries between the Tier 2 Pool Threshold Amount up to the Tier 3 Pool Threshold Amount, 50% to the Funds and 50% to LBHI2; and |
| (d) | For recoveries above the Tier 3 Pool Threshold Amount, 25% to the Funds and 75% to LBHI2. |
The “Tier 1 Pool Threshold Amount” is GBP 650 million. The “Tier 2 Pool Threshold Amount” is GBP 1.3 billion plus interest calculated at the simple rate of 2.25% from November 30, 2013 through September 3, 2018; thereafter, interest is calculated at the simple rate of 1.25%. The “Tier 3 Pool Threshold Amount” is GBP 2.2 billion plus interest calculated at the simple rate of 4.25% from November 30, 2013 through September 3, 2018; thereafter, interest is calculated at the simple rate of 2.5%.
A detailed summary of the terms of the parties’ commitments and the Joint Venture is available at www.lehman-docket.com in the Key Documents section.
If LBIE makes distributions on the Preferred Equity before aggregate distributions from the Joint Venture to the Funds and LBHI2 have reached GBP 2.2 billion (plus interest), then, in certain circumstances, LBHI2, Luxembourg Finance S.a.r.l. (“Lux Finance”) and LBHI shall be obligated to make payments to preserve the economic terms of the transaction as if 100% of the Preferred Equity proceeds had been transferred by LBHI2 to the Joint Venture.
Receivables from LBHI2:
| • | SLP3 has receivables from LBHI2, the receipt of which are subject to the final outcome of the legal resolution of the relative ranking of sub-debt issued by LBHI2 (See Note 6 – Legal Proceedings). As a result of estimated distributions to LBHI2 following the court sanction of the scheme of arrangement proposed by LBIE’s joint administrators, the Company has recorded an estimate of the recoveries on SLP3’s $6.139 billion subordinated receivables from LBHI2 (“SLP3 Sub Rec”). |
| • | Currently, LBHI is the indirect parent and the beneficiary of any proceeds paid pursuant to the SLP3 Sub Rec. |
| • | In addition, the Company has receivables from certain Non-Controlled Affiliates that have claims against LBHI2. |
Page 17
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Quarterly Financial Report as of April 2, 2020 (Unaudited)
Note 4 – Due from/to Debtors and Debtor-Controlled Entities
The table below presents the Due from/to Debtors and Debtor-Controlled Entities balances as of April 2, 2020, and the related activity since the previously filed Quarterly Financial Report as of December 31, 2019:
| Activity 01/01/20—04/02/20 | ||||||||||||||||||||||||
| $ in millions | As of December 31, 2019 | Cash Receipts | Cash Distributions | Claim Assignments (1) | Other(2) | As of April 2, 2020 | ||||||||||||||||||
Due From Controlled | ||||||||||||||||||||||||
Debtors: | ||||||||||||||||||||||||
Lehman Brothers Holdings Inc. | $ | 18,895 | (70 | ) | $ | — | $ | 3,038 | $ | (2,779 | ) | $ | 19,083 | |||||||||||
Lehman Commercial Paper Inc. | 5,912 | — | — | (5,912 | ) | — | — | |||||||||||||||||
Lehman Brothers Special Financing Inc. | 1,014 | (2 | ) | — | (837 | ) | (175 | ) | 0 | |||||||||||||||
Debtor-Controlled | 0 | 0 | 1 | |||||||||||||||||||||
Due To Controlled (3) | ||||||||||||||||||||||||
Debtors: | ||||||||||||||||||||||||
Lehman Brothers Holdings Inc. | $ | 3,789 | $ | — | (3,789 | ) | $ | (0 | ) | $ | (0 | ) | ||||||||||||
Lehman Commercial Paper Inc. | 2,910 | — | (39 | ) | 79 | $ | (2,950 | ) | 0 | |||||||||||||||
Lehman Brothers Special Financing Inc. | 10,030 | — | (12 | ) | 0 | $ | (0 | ) | 10,019 | |||||||||||||||
Debtor-Controlled | 8,556 | (11 | ) | (4 | ) | 8,540 | ||||||||||||||||||
| (1) | Claim Assignments include the sale of LCPI’s and LBSF’s claims to LBHI as stated in the individual sale and purchase agreements executed on December 27, 2019, and December 20, 2019, respectively, and effected in January 2020. |
| (2) | Includes debt forgiveness of $2.9 billion related to the closing of LCPI’s bankruptcy case. |
| (3) | “Due to Controlled” balances from Debtors are included in Liabilities Subject to Compromise herein. |
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Quarterly Financial Report as of April 2, 2020 (Unaudited)
Note 4 – Due from/to Debtors and Debtor-Controlled Entities (continued)
The following table presents a summary of Due from/to Debtors and Debtor-Controlled Entities balances for Debtors as of April 2, 2020:
| LBHI | LBSF | |||||||||||||||
$ in millions | Due from | Due to | Due from | Due to | ||||||||||||
Lehman Brothers Holdings Inc | $ | — | $ | — | $ | — | $ | (10,018 | ) | |||||||
LB Special Financing Inc | 10,018 | — | — | — | ||||||||||||
Lehman Commercial Paper Inc | (0 | ) | 0 | 0 | (0 | ) | ||||||||||
RACERS Claims (1) | 525 | — | — | — | ||||||||||||
Lehman Ali Inc: | ||||||||||||||||
Lehman Ali Inc (PCO) | 1,928 | — | — | — | ||||||||||||
LB I Group Inc: | ||||||||||||||||
LB I Group Inc (PCO) | 1,569 | — | — | — | ||||||||||||
LB Offshore Partners Ltd | 340 | — | — | — | ||||||||||||
314 Commonwealth Ave Inc: | ||||||||||||||||
314 Commonwealth Ave Inc (PCO) | 784 | 0 | — | — | ||||||||||||
Other: | ||||||||||||||||
Pami Ali LLC | 2,731 | (0 | ) | — | — | |||||||||||
Real Estate Private Equity Inc | 625 | — | — | — | ||||||||||||
SMF No.1 Limited | 122 | — | — | — | ||||||||||||
Repe LBREP LP, LLC | 180 | — | — | — | ||||||||||||
Other | 261 | 0 | — | — | ||||||||||||
“PCO” – parent company only | ||||||||||||||||
| (1) | Refer to Section IV.I.b of the Disclosure Statement for further information on the RACERS Claims. |
The following table presents a summary of Due from/to Affiliates balances for Debtor-Controlled Entities as of April 2, 2020:
| Lehman ALI Inc. | LB I Group Inc. | 314 Commonwealth Ave. Inc. | Other Debtor-Controlled Entities | |||||||||||||||||||||||||||||
| $ in millions | Due from | Due to | Due from | Due to | Due from | Due to | Due from | Due to | ||||||||||||||||||||||||
Debtors: | ||||||||||||||||||||||||||||||||
Lehman Brothers Holdings Inc. | $ | — | $ | (1,928 | ) | $ | — | $ | (1,909 | ) | $ | — | $ | (784 | ) | $ | (0 | ) | $ | (3,894 | ) | |||||||||||
Lehman Commercial Paper Inc. | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Lehman Brothers Special Financing Inc. | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Debtor-Controlled: | ||||||||||||||||||||||||||||||||
314 Commonwealth Ave Inc | $ | 45 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||
Lehman Ali Inc (1) | — | — | — | — | — | (45 | ) | 174 | — | |||||||||||||||||||||||
Real Estate Private Equity Inc (1) | — | — | — | — | — | — | 217 | (2 | ) | |||||||||||||||||||||||
LB I Group Inc. | — | — | — | — | — | — | — | (319 | ) | |||||||||||||||||||||||
Pami ALI LLC | — | (174 | ) | 291 | — | — | — | — | (217 | ) | ||||||||||||||||||||||
Other | — | (0 | ) | 28 | (25 | ) | (0 | ) | 0 | 8 | (1 | ) | ||||||||||||||||||||
| (1) | “Due from” balances at Other Debtor-Controlled Entities are related to receivables recorded by Pami ALI LLC. |
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Quarterly Financial Report as of April 2, 2020 (Unaudited)
Note 5 – Disputed Claims
The table below presents the remaining Disputed Claims by Debtor, by Class and by Primary Obligor as of April 2, 2020:
| $ in millions | ||||||||||||||||||||
Debtor/Class | Total Number of Filed Claims | Number of Unliquidated Claims | Total Filed Amount | Estimate of Disputed Claims for Reserve Purposes (2) | Total Cash Reserves for Disputed Claims (3) | |||||||||||||||
Lehman Brothers Holdings Inc. | ||||||||||||||||||||
2 Secured | 1 | 1 | $ | 6 | $— | $ | — | |||||||||||||
5 Senior Third-Party Guarantee (1) | 1 | — | 8 | 5 | 0 | |||||||||||||||
LBIE | 1 | — | 8 | 5 | 0 | |||||||||||||||
9A Third Party Guarantee other than of the RACERS Trusts (1) | 65 | 1 | 1,075 | 810 | 26 | |||||||||||||||
LBIE | 63 | — | 1,013 | 748 | 21 | |||||||||||||||
LBSF | 1 | 1 | — | — | — | |||||||||||||||
LBF | 1 | — | 62 | 62 | 5 | |||||||||||||||
|
|
|
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|
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|
|
|
| |||||||||||
Total - Lehman Brothers Holdings Inc. | 67 | 2 | $ | 1,089 | $ | 815 | $ | 26 | ||||||||||||
Lehman Brothers Special Financing Inc. | ||||||||||||||||||||
4A General Unsecured Claims other than those of Designated Entities | 1 | 1 | $ | — | $ | — | $ | — | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total - Lehman Brothers Special Financing Inc. | 1 | 1 | $ | — | $ | — | $ | — | ||||||||||||
| (1) | The Disputed Claims relate to asserted guarantee obligations related to the primary obligor. |
| (2) | Certain Claims have been estimated at less than filed amounts, for reserve purposes only, as agreed through stipulation or settlement agreement or pursuant to Court order. Unless otherwise agreed to or ordered by the Court, there is no reserve for unliquidated Claims. |
| (3) | In addition to cash, assets are being maintained as reserves for certain claims pursuant to agreements with creditors and/or Bankruptcy Court order. |
Page 20
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Quarterly Financial Report as of April 2, 2020 (Unaudited)
Note 6 – Legal Proceedings
The Company is involved in or will be impacted by a number of judicial, regulatory and mediation proceedings concerning matters arising in connection with the bankruptcy proceedings and various other matters, including the proceedings listed below. The Company has not included in the April 2, 2020 Cash Flow Estimates any estimate of recoveries for the Excluded Litigations in the table shown below, but has included estimates of recoveries for all other affirmative litigation matters it is pursuing. The Company is not aware of any other litigation matters where the amount at issue exceeds $10 million. As more information becomes available, the Company may record revisions, which may be material, in future Quarterly Financial Reports. (See Note 1—Basis of Presentation—Litigation for further discussion on the impact of these litigations on the cash flow estimates.)
EXCLUDED LITIGATIONS | ||||||||||
Counterparty | Debtor(s) | Commenced | Court | Court Reference | Most Recent | |||||
Mortgage Sellers | LBHI | Various | Various | Various | (a) | |||||
Bank of America National Association et al. (“SPV Avoidance Actions”) | LBSF | September 2010 | Bankruptcy Court | 10-03547 (SCC) | December 31, 2019 Balance Sheets - Docket No. 60486 | |||||
Ballyrock ABS CDO 2007-1 Limited Wells Fargo Bank N.A. (“Ballyrock Litigation”) | LBSF | February 2009 | Bankruptcy Court | 09-01032 (SCC) | December 31, 2019 Balance Sheets - Docket No. 60486 | |||||
OTHER LITIGATIONS | ||||||||
Counterparty | Controlled | Debtor(s) Potentially | Court | Most Recent | ||||
PLC, LBHI2, LB GP No. 1 Ltd, Deutsche Bank (“ECAPs”) | LBHI SLP3 | LBHI | UK Court | (b) | ||||
Guarantee Claims For Which LBIE Is The Primary Obligor | LBHI | LBHI | Bankruptcy Court | (c) | ||||
LBIE Other | None | LBHI | Various | (d) | ||||
LBF Guarantee - Enasarco | None | LBHI | Swiss Court | April 5, 2018 Balance Sheets - Docket No. 58442 | ||||
Guarantee Clawbacks | LBHI | LBHI | Bankruptcy Court | (e) | ||||
Trilantic | LB 1 Group and others | LBHI | NY State Supreme Court | (f) | ||||
LBT Clawbacks | LBHI | LBHI | Bankruptcy Court | (g) | ||||
Sweetwater | LBHI | LBHI | Delaware Chancery Court | (h) | ||||
Page 21
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Quarterly Financial Report as of April 2, 2020 (Unaudited)
Note 6 – Legal Proceedings (continued)
| (a) | Mortgage Sellers |
LBHI filed complaints in the Bankruptcy Court against numerous mortgage sellers seeking indemnification arising from the Allowed Claims of Fannie Mae, Freddie Mac (collectively, the “GSE Claims”) and Private Label Trustees (the “PL Claims”) against LBHI for losses from defective loans purchased from LBHI. 67 cases have been resolved and the corresponding complaints dismissed with prejudice. LBHI has obtained default judgments against 21 of the defendants and is pursuing default judgments against 18 additional defendants who have failed to file a response to the complaints. There are 63 parties remaining that have responded to the complaints filed against them. In aggregate, the complaints assert approximately $179 million in GSE Claims and $865 million in PL Claims. The PL Claims are subject to an allocation methodology to be approved by the Bankruptcy Court. For illustrative purposes only, if the methodology approved by the Bankruptcy Court is on the basis that each defendant will be allocated its pro rata share of the PL Claims, then the aggregate damages sought from the 64 defendants who have responded to the complaints filed would be reduced from $865 million to approximately $183 million. On March 25, 2020, LBHI filed a Notice with the Court providing preliminary and non-binding disclosure of the allocation methodology it may seek to apply in this case [Docket No. 60483 in Case No. 08-13555].
On June 11, 2020, the Bankruptcy Court for the Northern District of California allowed the full amount of LBHI’s $13.3 million allocated claim in the Home Loan Center, Inc. (“HLC”) bankruptcy proceeding [Case No. 19-51455 MEH Chapter 7 Hon. M. Elaine Hammond]. That same day, LBHI filed suit against HLC’s corporate parents LendingTree, LLC and LendingTree, Inc. for any deficit after final distribution from the HLC bankruptcy on that $13.3 million allowed claim.
Certain defendants filed a motion to dismiss the complaints on the basis that Lehman Brothers Bank, the original purchaser of the mortgage loans at issue, never effectuated the assignment of its indemnity rights to LBHI prior to the commencement of the chapter 11 cases and therefore, the Bankruptcy Court does not have subject matter jurisdiction over those cases. The moving defendants also seek dismissal on the basis that LBHI gave up its indemnity rights when it sold the loans to the Private Label Trusts. LBHI opposed the motion. The Bankruptcy Court heard argument on October 16, 2019 and reserved decision.
LBHI is also pursuing substantially smaller claims against 2,126 mortgage sellers and brokers for a total of $683 million in PL Claims, subject to allocation. For illustrative purposes, if that allocation is on a pro rata basis as described above, then the aggregate damages sought from these mortgage sellers would be reduced from $683 million to approximately $146 million. As of July 29, 2020, LBHI has settled with 189 similarly situated parties.
| (b) | ECAPs |
Prior to the Commencement Date, the Company raised approximately $2 billion through the issuance in the UK of Enhanced Capital Advantaged Preferred Securities (“ECAPS”). The ECAPS were issued via five UK funding partnerships: Lehman Brothers UK Capital Funding LP, Lehman Brothers UK Capital Funding II LP and Lehman Brothers UK Capital Funding III LP, (“ECAPS I-III”), and Lehman Brothers UK Capital Funding IV LP and Lehman Brothers UK Capital Funding V LP.
Lehman Brothers Holdings PLC (“PLC”) has outstanding approximately €0.79 billion of subordinated notes issued to ECAPS I-III and approximately $1.9 billion of subordinated debt which is currently held by LBHI. LBHI2 has outstanding approximately $2.225 billion of subordinated debt issued to PLC and approximately $6.139 billion of subordinated notes which is currently held by Lehman Brothers Holdings Scottish LP 3.
On March 16, 2018, the Joint Administrators of PLC and LBHI2 each made an application to the High Court in England to seek, among other things, its determination of issues of priority in respect of potential distributions to the holders of the subordinated debts. The trial began on November 11 and concluded on November 22, 2019. The Court gave judgment on July 3, 2020 (see Docket No. 60706). A hearing on consequential matters to decide the parties’ requests to be reimbursed for their costs and leave to seek appeal occurred on July 24, 2020.
For further information please refer to: www.pwc.co.uk/services/business-recovery/administrations/non-lbie-companies/lbh-plc-in-administration.html and www.pwc.co.uk/services/business-recovery/administrations/non-lbie-companies/lbhi2-limited-in-administration.html
Page 22
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Quarterly Financial Report as of April 2, 2020 (Unaudited)
Note 6 – Legal Proceedings (continued)
| (c) | Guarantee Claims For Which LBIE Is The Primary Obligor |
On July 10, 2018, LBHI filed a motion to have the Bankruptcy Court determine whether interest payments made by LBIE pursuant to its scheme should be counted as “consideration” by a Primary Obligor on the Primary Claims underlying the remaining Guarantee Claims held by affiliates of Deutsche Bank A.G. (“DB”) and Attestor Value Master Fund L.P. (“Attestor”) [ECF No. 58381]. On August 14, 2018, the Bankruptcy Court ruled that such payments by LBIE were consideration such that DB’s and Attestor’s claims should be deemed satisfied in full. On August 20, 2018, both DB and Attestor filed notices of appeal to the District Court. On August 16, 2019, the District Court affirmed the Bankruptcy Court’s decision. On September 13 and 16, 2019, Attestor and DB filed an appeal to the United States Court of Appeals for the Second Circuit, which remains pending. The Second Circuit has scheduled oral argument on the appeal for August 20, 2020.
LBHI previously filed an objection to disallow six, LBIE-based, prime-brokerage-related Guarantee Claims seeking $118 million filed by funds related to Maverick Capital Ltd (“Maverick”) [ECF No. 53107]. On March 24, 2017, the Bankruptcy Court granted LBHI’s objection, disallowed Maverick’s claims, and ruled that Maverick could not amend its proofs of claim to assert direct (as opposed to guarantee) liability against LBHI [ECF No. 55346]. Maverick appealed that decision to the United States District Court for the Southern District of New York. On September 30, 2018, the District Court reversed the Bankruptcy Court’s decision that section 562 of the Bankruptcy Code and certain exculpatory clauses contained in the prime brokerage agreement at issue applied to Maverick’s claims, and remanded the case to the Bankruptcy Court for further proceedings. On July 3, 2019, LBHI filed a motion seeking to reduce Maverick’s claims to $4.3 million. On August 8, 2019, Maverick filed its opposition to that motion. On September 10, 2019, the Court heard argument on the Motion and reserved decision.
| (d) | LBIE Other |
The outcome of the following litigation may impact LBHI’s potential indirect recoveries from LBIE:
AG Financial Products Inc.
On November 28, 2011, LBIE sued AG Financial Products Inc. (“AGR”), an affiliate of Assured Guaranty Corp., which in the past had provided credit protection to counterparties under credit default swaps. LBIE’s complaint, which was filed in the Supreme Court of the State of New York (the “New York Supreme Court”), alleged that AGR improperly terminated nine credit derivative transactions between LBIE and AGR and improperly calculated the termination payment in connection with the termination of 28 other credit derivative transactions between LBIE and AGR. LBIE asserted in the complaint that AGR owes LBIE a termination payment of approximately $1.4 billion.
On July 2, 2018, the New York Supreme Court dismissed LBIE’s allegation with respect to the breach of the implied covenant of good faith and fair dealing and the claims relating to the nine terminated transactions, but found that there is a genuine question of fact as to the reasonableness and good faith of AGR’s calculation of its loss, and so LBIE may proceed with its claim against AGR for breach of contract. On July 31, 2018, AGR filed a Notice of Appeal with the New York State Appellate Division. On December 11, 2018, the Appellate Division heard oral arguments on the appeal. On January 17, 2019, the Appellate Division affirmed the Supreme Court’s decision in its entirety. The trial was originally scheduled for March 9-20, 2020, but has been adjourned by the Court as a result of risks posed by the coronavirus. The parties await a rescheduled trial date.
For further information please refer to: https://www.pwc.co.uk/services/business-recovery/administrations/lehman/lehman-brothers-international-europe-in-administration-joint-administrators-nineteenth-progress-report-10-april-2018.html.
Page 23
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Quarterly Financial Report as of April 2, 2020 (Unaudited)
Note 6 – Legal Proceedings (continued)
| (e) | Guarantee Clawbacks |
On April 30, 2019, LBHI filed an adversary proceeding in the Bankruptcy Court against Lehman Brothers Holdings Intermediate 2 Ltd. (in administration) (“LBHI2”), Lehman Brothers Limited (in administration) (“LBL”), Eldon Street Holdings Limited (in administration) (“ESH”) and MBAM Investor Limited (“MBAM”) seeking the return of $260 million in excess distributions on guarantee claims allowed against LBHI (plus prejudgment interest of 9%), because, subsequent to LBHI’s payment of the distributions on such guarantee claims, the primary obligor fully satisfied the corresponding primary claim(s). On May 23, 2019, Deutsche Bank was permitted to intervene as a defendant by stipulation. On June 28, 2019, the defendants answered and denied the allegations in the complaint, and LBL, ESH, and LBHI2 each asserted a counterclaim that their guarantee claims had not yet been satisfied. MBAM did not initially assert a counterclaim, but subsequently amended its answer to counterclaim and interplead Lehman Brothers Holdings PLC. The parties have completed the document discovery phase of the case and are now in the deposition phase.
| (f) | Trilantic |
On November 12, 2019, Trilantic filed a complaint in New York State Supreme Court against LB 1 Group Inc. and Lehman Brothers Equity Advisers LLC, both Debtor-Controlled Entities, alleging that it was fraudulently induced to purchase Lehman Brothers Merchant Banking Partners IV L.P. by the defendants because they failed to disclose certain liabilities relating to one of the fund’s investments. The complaint seeks unspecified damages arising from having paid too much for the fund in light of the allegedly undisclosed liability. The defendants moved to dismiss the complaint on January 31, 2020 on the bases that there was no liability to disclose at the time of the sale in June 2009 and because the claims are barred by the applicable statute of limitations. On June 5, 2020, the parties settled this matter and the claims were dismissed with prejudice.
| (g) | LBT Clawbacks |
Various creditors filed guarantee claims against LBHI where the primary obligor is Lehman Brothers Treasury Co. B.V. (“LBT”). The Bankruptcy Court allowed those guarantee claims and the related primary claims were allowed in an insolvency proceeding in Amsterdam, Netherlands. The Plan provides that an allowed guarantee claim is deemed satisfied when distributions from LBHI combined with payments on the primary claim equal the amount of the allowed guarantee claim. LBHI has made distributions on the allowed guarantee claim that when combined with the payments made on the primary claim exceed the amount of the allowed guarantee claim. LBHI demanded return of those excess payments from the holders of such claims and many have complied, but some have not, including Capital Partners Securities Co., Ltd. (“Capital Partners”).
In light of Capital Partners’ failure to return the excess guarantee payments, the Plan Administrator filed a Motion for an Order in Aid of Execution of the Plan in the Bankruptcy Court on September 17, 2019, seeking return of those excess guarantee payments made to Capital Partners. Capital Partners filed its opposition to that Motion on October 28, 2019 and the Plan Administrator filed its Reply to that opposition on November 18, 2019. The Motion seeks an Order directing Capital Partners to return that excess amount of approximately $6 million, which is the largest amount owed by any holder of such a claim. The hearing on the Motion has been adjourned to September 1, 2020 to provide the parties an opportunity to try to resolve the dispute consensually.
| (h) | Sweetwater |
The State of Delaware filed an action in 2007 in Delaware Chancery Court against LBHI and Sweetwater Point LLC, an entity established to develop real estate, seeking a ruling that the State has superior title to the Sweetwater development site. LBHI and Sweetwater denied the claim to superior title and counterclaimed for damages resulting from the State’s failure to assert its allegedly superior right to ownership of the property in a timely fashion. LBHI holds a 50% interest in Sweetwater Point and a $6 million mortgage on the property in question. The case went to trial on the sole issue of title in 2017. In March of 2018 the Chancery Court ruled in favor of the State. The parties are now in the discovery phase with respect to the counterclaims.
Page 24
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Quarterly Financial Report as of April 2, 2020 (Unaudited)
Note 7 – Taxes Payable
Taxes payable is an estimate of tax liabilities, net of the estimated impact of any refund claims, deposits and net operating losses (“NOL”). Taxes payable have been allocated among the members of the LBHI Tax Group pursuant to the Debtor Allocation Agreement (the “DAA”) (see below for further information).
As of April 2, 2020, the Company recorded an estimate of $37 million for potential pre- and post-petition amounts owed to federal, state, local and international taxing authorities, net of expected refund claims. Between December 31, 2019 and April 2, 2020, the Company reduced its taxes payable estimate by approximately $4 million as a result of global tax audit progress and the inclusion of tax liabilities associated with formerly non-controlled foreign entities.
Debtor Allocation Agreement
The Debtor Allocation Agreement, which became effective on the Effective Date, addresses the relationship among the Debtors and certain Affiliates with respect to consolidated federal/combined state/local income taxes for pre-petition and post-petition years. Pursuant to the DAA, any tax receivables or payables related to pre-petition, consolidated group taxes, including the IRS refund, are treated as allowed pre-petition claims between LBHI and other Debtors and Debtor-Controlled Entities and subject to set-off or recoupment.
Net Operating Losses
The NOLs of the LBHI Tax Group (including Debtor-Controlled Entities) are subject to audit and adjustment by the IRS and primarily expire in or about 2028. Substantially all of the LBHI Tax Group’s current consolidated net operating loss carryovers are attributable to the Debtors. The Plan provides for an orderly liquidation of the Debtors. As previously disclosed in the Company’s Quarterly Financial Report as of March 31, 2012 [Docket No. 29731], the LBHI Tax Group received a private letter ruling from the IRS in connection with the Plan going effective that stated (i) the liquidation of the Debtors for U.S. federal income tax purposes may occur over an extended period, and (ii) the reduction of the LBHI Tax Group’s NOLs as a result of the discharge
of debt pursuant to the Plan generally would not occur until completion of the liquidation.
In January 2020, the Company received a supplemental IRS ruling extending the original ruling relating to the Company’s liquidation. All remaining Debtor NOLs not previously utilized to absorb taxable income of the LBHI Tax Group are expected to be fully utilized to offset income resulting from the discharge of debt on the final date of liquidation of the Debtors.
Page 25
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Quarterly Financial Report as of April 2, 2020 (Unaudited)
Note 8 – Subsequent Events
ECAPs Ruling
On July 3, 2020, the High Court of England and Wales gave judgment relating to the ranking of claims held by LBHI and one of its affiliates in the insolvency proceedings of Lehman Brothers Holdings PLC (in administration) and LBHI2 (see Note 6 herein and Docket No. 60706).
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LEHMAN BROTHERS HOLDINGS INC. and Other Debtors and Debtor-Controlled Entities
Balance Sheets As of April 2, 2020
(Unaudited)
| Lehman Brothers Holdings Inc. | Lehman Brothers Special Financing Inc. | Lehman Commercial Paper Inc. | BNC Mortgage LLC | Lehman Brothers OTC Derivatives Inc. | Total Debtor | Total Debtor- Controlled | Total | |||||||||||||||||||||||||
($ in millions) | 08-13555 | 08-13888 | 08-13900 | 09-10137 | 08-13893 | Entities (1) | Entities (2) | Company | ||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||
Cash and short-term investments | $ | 92 | $ | 4 | $ | 0 | $ | 2 | $ | 0 | $ | 97 | $ | 56 | $ | 154 | ||||||||||||||||
Cash and short-term investments pledged or restricted | 150 | 6 | 0 | — | — | 156 | 19 | 175 | ||||||||||||||||||||||||
Financial instruments and other inventory positions: | ||||||||||||||||||||||||||||||||
Commercial Real Estate | 4 | — | — | — | — | 4 | 0 | 4 | ||||||||||||||||||||||||
Residential Real Estate and Other | 4 | — | — | — | — | 4 | 0 | 4 | ||||||||||||||||||||||||
Principal investments | 6 | — | — | — | — | 6 | 24 | 29 | ||||||||||||||||||||||||
Derivative Receivables and Related Assets | — | 7 | — | — | — | 7 | — | 7 | ||||||||||||||||||||||||
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Total Financial instruments and other inventory positions | 14 | 7 | — | — | — | 21 | 24 | 45 | ||||||||||||||||||||||||
Receivables from Debtors and Debtor-Controlled Entities and other assets | 76 | 1 | 0 | 0 | — | 77 | 74 | 151 | ||||||||||||||||||||||||
Investments in Affiliates | (30,264 | ) | — | — | — | — | (30,264 | ) | (22,660 | ) | (52,924 | ) | ||||||||||||||||||||
Due from Affiliates: | ||||||||||||||||||||||||||||||||
Debtors and Debtor- Controlled Entities | 19,083 | — | — | — | — | 19,083 | 1 | 19,084 | ||||||||||||||||||||||||
Non-Controlled Affiliates | 9,943 | (0 | ) | — | — | — | 9,943 | 804 | 10,747 | |||||||||||||||||||||||
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Total Due from Affiliates | 29,027 | (0 | ) | — | — | — | 29,027 | 804 | 29,831 | |||||||||||||||||||||||
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Total Assets | $ | (905 | ) | $ | 17 | $ | 0 | $ | 2 | $ | 0 | $ | (886 | ) | $ | (21,683 | ) | $ | (22,568 | ) | ||||||||||||
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Liabilities and Stockholders’ Equity | ||||||||||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||
Payables to Debtors and Debtor-Controlled Entities and other liabilities | $ | 89 | $ | 3 | $ | 0 | $ | 0 | $ | — | $ | 92 | $ | 5 | $ | 98 | ||||||||||||||||
Due to Affiliates: | ||||||||||||||||||||||||||||||||
Debtor-Controlled Entities | $ | — | — | — | — | — | — | 8,540 | 8,540 | |||||||||||||||||||||||
Non-Controlled Affiliates | — | — | — | — | — | — | 30 | 30 | ||||||||||||||||||||||||
Total Due to Affiliates | — | — | — | — | — | — | 8,570 | 8,570 | ||||||||||||||||||||||||
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Taxes Payable | 29 | — | — | — | — | 29 | 8 | 37 | ||||||||||||||||||||||||
Liabilities Subject to Compromise | 131,421 | 22,677 | (0 | ) | (0 | ) | (0 | ) | 154,098 | 0 | 154,098 | |||||||||||||||||||||
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Total Liabilities | 131,539 | 22,680 | 0 | — | (0 | ) | 154,219 | 8,583 | 162,802 | |||||||||||||||||||||||
Stockholders’ Equity | (132,445 | ) | (22,662 | ) | 0 | 2 | 0 | (155,105 | ) | (30,266 | ) | (185,370 | ) | |||||||||||||||||||
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| Total Liabilities and Stockholders’ Equity | $ (905) | $ 17 | $ 0 | $ 2 | $ 0 | $ (886) | $ (21,683) | $ (22,568) | ||||||||||||||||||||||||
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See accompanying Notes to Balance Sheets
Note: All values that are exactly zero are shown as “—”. Values between zero and $500,000 appear as “0”.
| (1) | Balances for Debtors do not reflect the impact of eliminations of intercompany balances and investments in subsidiaries. |
| (2) | Certain Debtor-Controlled Entities’ Balance Sheets are presented on page 28. |
| (3) | On December 27, 2019, LBHI and LCPI executed a sale and purchase agreement pursuant to which LBHI agreed to purchase LCPI’s remaining assets and certain obligations for total consideration of $63.2 million. On December 20, 2019, LBHI and LBSF executed a sale and purchase agreement pursuant to which LBHI agreed to purchase LBSF’s Allowed Claims into LBHI for total consideration of $17.7 million. These transactions were effective in January 2020. |
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LEHMAN BROTHERS HOLDINGS INC. and Other Debtors and Debtor-Controlled Entities
Balance Sheets As of April 2, 2020 (Debtor-Controlled Entities)
(Unaudited)
($ in millions) | Lehman ALI Inc. (2) | Property Asset Management Inc. (3) | LB I Group Inc. (3) | Lehman Brothers Bancorp Inc. (3) | PAMI Holdings LLC | 314 Common- wealth Ave Inc. (3) | PAMI ALI LLC | Other Debtor- Controlled Entities | Debtor - Controlled Group Elims (1) | Total Debtor- Controlled Entities | ||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||||||
Cash and short-term investments | $ | 0 | $ | 0 | $ | 1 | $ | 3 | $ | 10 | $ | 0 | $ | 0 | $ | 42 | $ | — | $ | 56 | ||||||||||||||||||||
Cash and short-term investments pledged or restricted | (0 | ) | 0 | 7 | — | — | — | — | 11 | — | 19 | |||||||||||||||||||||||||||||
Financial instruments and other inventory positions: | ||||||||||||||||||||||||||||||||||||||||
Commercial Real Estate | — | 0 | — | — | — | — | (0 | ) | — | — | 0 | |||||||||||||||||||||||||||||
Residential Real Estate and Other | — | 0 | 0 | — | — | — | — | — | — | 0 | ||||||||||||||||||||||||||||||
Principal investments | 0 | — | 7 | — | — | — | 0 | 16 | — | 24 | ||||||||||||||||||||||||||||||
Derivative Receivables and Related Assets | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||
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Total Financial instruments and other inventory positions | 0 | 0 | 7 | — | — | — | 0 | 16 | — | 24 | ||||||||||||||||||||||||||||||
Receivables from Debtors and Debtor-Controlled Entities and other assets | 0 | 0 | 1 | 69 | 0 | 0 | 0 | 16 | (13 | ) | 74 | |||||||||||||||||||||||||||||
Investments in Affiliates | (27,725 | ) | — | — | 2 | — | — | — | 0 | 5,063 | (22,660 | ) | ||||||||||||||||||||||||||||
Due from Affiliates: | ||||||||||||||||||||||||||||||||||||||||
Debtors and Debtor- Controlled Entities | 45 | — | 319 | — | 0 | (0 | ) | 390 | 8 | (762 | ) | 1 | ||||||||||||||||||||||||||||
Non-Controlled Affiliates | (0 | ) | — | 0 | — | 1 | — | (0 | ) | 803 | — | 804 | ||||||||||||||||||||||||||||
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Total Due from Affiliates | 45 | — | 319 | — | 2 | (0 | ) | 390 | 811 | (762 | ) | 804 | ||||||||||||||||||||||||||||
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Total Assets | $ | (27,680 | ) | $ | 0 | $ | 336 | $ | 74 | $ | 12 | $ | 0 | $ | 391 | $ | 896 | $ | 4,288 | $ | (21,683 | ) | ||||||||||||||||||
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Liabilities and Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||||||||||
Payables to Debtors and Debtor-Controlled Entities and other liabilities | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 3 | $ | 0 | $ | 0 | $ | 15 | $ | (13 | ) | $ | 5 | |||||||||||||||||||
Due to Affiliates: | ||||||||||||||||||||||||||||||||||||||||
Debtor-Controlled Entities | 2,101 | — | 1,934 | — | 6 | 829 | 3,023 | 1,409 | (762 | ) | 8,540 | |||||||||||||||||||||||||||||
Non-Controlled Affiliates | — | — | 1 | — | 1 | — | — | 27 | — | 30 | ||||||||||||||||||||||||||||||
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Total Due to Affiliates | 2,101 | — | 1,936 | — | 7 | 829 | 3,023 | 1,436 | (762 | ) | 8,570 | |||||||||||||||||||||||||||||
Taxes Payable | — | — | 2 | — | — | — | — | 6 | — | 8 | ||||||||||||||||||||||||||||||
Liabilities Subject to Compromise | — | — | — | — | — | — | — | 0 | — | 0 | ||||||||||||||||||||||||||||||
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Total Liabilities | 2,101 | 0 | 1,938 | 0 | 9 | 829 | 3,024 | 1,457 | (775 | ) | 8,583 | |||||||||||||||||||||||||||||
Stockholders’ Equity | (29,782 | ) | 0 | (1,602 | ) | 74 | 3 | (829 | ) | (2,632 | ) | (561 | ) | 5,063 | (30,266 | ) | ||||||||||||||||||||||||
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Total Liabilities and Stockholders’ Equity | $ | (27,680 | ) | $ | 0 | $ | 336 | $ | 74 | $ | 12 | $ | 0 | $ | 391 | $ | 896 | $ | 4,288 | $ | (21,683 | ) | ||||||||||||||||||
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See accompanying Notes to Balance Sheets
Note: All values that are exactly zero are shown as “—”. Values between zero and $500,000 appear as “0”.
| (1) | Balances reflect the impact of eliminations of (i) intercompany balances only between Debtor-Controlled Entities and (ii) investments in subsidiaries only between Debtor-Controlled Entities. |
| (2) | Lehman Ali Inc is reflected on a consolidated basis, excluding (i) separately reported wholly-owned subsidiaries that are Debtor entities (e.g. LCPI and LBSF) and (ii) separately reported Debtor-Controlled Entities and their direct subsidiaries (e.g. 314 Commonwealth Ave Inc., Property Asset Management Inc. and Pami ALI LLC). |
| (3) | Entities are reflected on a consolidated basis. |
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