bankruptcy

  • 14 May 2013 at 3:06 PM

Actually Lehman’s Bankruptcy Worked Out Well For A Lot Of People

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Bloomberg has a fantastic article today about how Lehman’s decaying corpse is suing a bunch of former clients, many of them wee and sympathetic nonprofits, who hosed Lehman when they terminated swaps in September 2008. Some of these lawsuits turn on disputes over when those clients, or their consultants, should have valued the swaps for termination purposes, and I was looking forward to reading Bloomberg’s account of which of those customers used the SWPM <go> function on their terminals and on what dates, but for some reason that wasn’t mentioned.

The basic story is that clients had trades with Lehman that were in-the-money to Lehman, and when Lehman went bankrupt the clients terminated the trades and wired Lehman termination payments that Lehman now rather belatedly finds inadequate. You could understand why the clients would want to get out of these trades: for one thing, the trades had moved against the clients (thus being in-the-money to Lehman) and seemed likely to move further against them1; for another, if the trades did move back in the clients’ favor, what were the odds that a freshly bankrupted Lehman would pay the clients what they were owed?

Is Lehman right that the clients underpaid? Oh, I mean, of course. I don’t have the details of the trades but you can reason this out from first principles. Here:

  • It’s September 15, 2008, and Lehman has just filed for bankruptcy.
  • You owe Lehman some money.
  • How much you owe them is a somewhat subjective matter that depends on what termination date you pick, what model you use, whom you ask for a quote, etc.
  • You know, with some certainty, that everyone at Lehman who knows anything about your trade, and also everyone who doesn’t, has bigger things to worry about, like stealing office supplies on their way out the door.
  • You can basically write them a check and enclose a note saying “here’s what we think we owe you,” and see if they write back.
  • How big is the check?

Read more »

  • 02 May 2013 at 12:09 PM

Lehman’s Bankruptcy Worked Out Well For Intel, Anyway

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One possible reaction to Apple’s gigantic tax-optimized share repurchase program is to think that spending a lot of time fiddling with how to optimize your share repurchase program might mean you’re out of better ideas. You can ponder whether this Intel share repurchase trade described in a Lehman Brothers bankruptcy lawsuit filed yesterday supplies any evidence on that question. Intel decided to buy back $1bn of its stock in August and September of 2008, and rather than just buy it in the market it entered into a pretty fiddly forward contract with Lehman like so:1

  • Intel gives Lehman $1bn on August 29.
  • Lehman hands the $1bn back to Intel for safekeeping – it’s Lehman’s money, but Intel keeps it as collateral.
  • On September 29, Lehman gives Intel some shares, based on the average price of Intel stock from August 29 to September 26.2
  • The dollar amount of shares Intel buys is $1bn, if the average price is $21 or below, or $250mm, if the average price is $25 or above, or some amount linearly in between if the average price is between $21 and $25:

  • If the dollar amount Intel buys is less than $1 billion, Lehman gives back the extra money.
  • So in other words as the stock price goes up Intel buys fewer shares, and vice versa, which is kind of wrong-way for them3 but right-way for Lehman.
  • In exchange for that risk Lehman agrees to give them a discount of 10.6 cents per share.4
  • The number of shares Intel buys is equal to the dollar amount divided by the average price minus 10.6 cents:

Read more »

  • 15 Apr 2013 at 3:34 PM

Australian Unit Apparently To Blame For Lehman Brothers Bankruptcy

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Creditors of the former investment bank in the U.S. and Europe will get everything back. Creditors in Australia are not so lucky. Read more »

LightSquared Creditors Will Get The Documents They Want, After They’ve Pried Them Out Of Phil Falcone’s Cold Dead Hands

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LightSquared’s lenders says Philip Falcone’s Harbinger Capital Partners won’t hand over documents they are requesting as part of an investigation over whether they can pursue claims against Harbinger and the wireless satellite company. In a Tuesday filing with U.S. Bankruptcy Court in Manhattan, lawyers for a group of LightSquared lenders owed more than $1 billion said it “appears” LightSquared received “preferential” loans last summer without any investment by Harbinger, which owns most of LightSquared’s stock and has four of the company’s six board seats. The lender group says it has the right to subpoena Harbinger as part of its June agreement to allow LightSquared to use cash secured by its loans. But Harbinger, it says, has refused. “Harbinger’s basis for its blanket refusal is that ‘as these cases progress, it will become clear that sufficient value exists to pay all creditors in full under a Chapter 11 plan,’” said the lenders, whose loans are secured by all of LightSquared’s assets. [DowJones]

  • 27 Apr 2012 at 5:56 PM

Experience The Collapse Of Lehman Brothers Again, For The First Time

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How will you be spending your weekend? I know what I’ll be doing, which is reading all the Lehman bankruptcy documents. They’ve been online for a week or two and we’ve had some teasers today, covering how much all the big fish got paid and how much all the medium-sized fish in IBD got paid. Naturally those were the first things anyone noticed because, y’know, money. And money is important. But this industry isn’t just about money. It’s also about hope:

It’s about faith: Read more »

  • 21 Feb 2012 at 2:38 PM

This Is Really Only The “Second” Greek Bailout?

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If you’re into Greece you’ve probably already read all about it and if you’re not I can’t make you. But in brief: Greece is fixed and we will NEVER HEAR ABOUT ANY PROBLEMS EVER AGAIN. In less brief:
(1) Some folks stayed up all night and produced a statement.
(2) Greece’s private creditors will be offered the long-anticipated opportunity to voluntarily exchange their old bonds for new bonds, which will for the most part be the same as the old bonds except for minor differences including but not limited to a greatly extended maturity (to 2042), a 53.5% reduced face amount, and a 3.6% blended interest rate.
(3) If they don’t voluntarily exchange, which they will because – hilariously – they’ve already taken accounting writedowns (and also because I guess it’s better than a disorderly default), private holders will get CAC’ed, which may or may not be as bad as it sounds, but in any case at least CDS will pay out, unless it doesn’t.
(4) Also the public sector will do various helpful, confusing things.
(5) In exchange for this, Greece will enact horrible austerity, and because no one believes that Greece will actually do that, there will be escrow accounts and what Reuters ominously calls “permanent surveillance by an increased European presence on the ground.”
(6) Everyone is pretty sure we’ll be doing this again in six months and, look, just fair warning, I will not be writing about it then, because feh.

We haven’t had a serious international bankruptcy, which this pretty much is, since I started paying attention to the financial markets, two months ago, so I mostly think about insolvency from a US bankruptcy law perspective. One thing that happens in bankruptcy is that, like, really really roughly speaking, the creditors stop being creditors and become the owners. This isn’t always the case but the basic playbook of US bankruptcy law is: Read more »

If Only Twinkies Maker Had Had Someone Whose Job It Was To Remember Not To Go Bankrupt

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Stephen Lubben at DealBook noticed something kind of amazing in the Hostess Brands bankruptcy case:

Turns out that Hostess has no treasury department. Indeed, it apparently doesn’t have anyone who can perform treasury functions at all.

The company has asked the bankruptcy court for permission to hire FTI Consulting to do the work. Apparently Hostess does not have much of a finance department either, since FTI is also providing employees for that department.

If approved, FTI will provide three people to staff Hostess’ treasury department. The interim treasurer gets monthly fees that work out to an annual salary of $780,000. His two deputies get $660,000 per year, each.

The finance department group gets paid hourly rates that top out at $895 per hour. You might think that would supplant the need for a financial adviser in the case, but Hostess is asking to retain one of those, too.

Now that maybe goes a little overboard on the grave-dancing (lots of, really all, companies with full honest-to-goodness treasury and finance staffs still hire advisers in bankruptcy) but, still: that is kind of weird! If you read Hostess’s motion and the attached engagement letter, it appears that they’re just seeking signoff on an arrangement they struck in June. So they’ve been operating for at least six months or so with an outside consultant as their contract treasurer – and with the rest of their treasury roles filled either by other consultants or by nobody. That’s somewhat unusual for a company with 19,000 employees, a pension plan, and something like $1bn in enterprise value.*

I don’t really know what’s going on here but just for fun let’s blame private equity! In this connection, it’s worth noting that Hostess has been down this road before and was acquired out of bankruptcy in 2009 by Ripplewood Holdings. Private equity firms are, of course, rapacious scum put on earth solely to destroy the jobs of innocent hard-working Americans, so sayeth Newt, and if you like you can put that interpretation on Ripplewood here, or not, whatever. That will be determined by a series of campaign ads and op-eds, though it’s worth noting that Ripplewood had the decency to pluck Hostess out of Chapter 11 and keep it alive for over two years before re-bankrupting it.

But I think this oddity illustrates another aspect of private equity firms, which is that their deals-’n'-finance operations tend to be comically lean and intensively supported by outside advisers. Read more »

  • 10 Nov 2011 at 6:45 PM

No One Tell Matt Taibbi That The Koch Brothers Maybe Did A Shady Thing In Connection With A Firm Run By A Former Goldman Guy

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One way to prevent runs on the bank is to make banks stable and reassure clients that their money is safe. Maybe another way is to make a run on the bank pointless by forcing the fastest runners to give their money back to the slowpokes. That seems to be this:

Frederick Grede, trustee for the bankruptcy of futures commission merchant (FCM) Sentinel, has sued 50 of its former customers to recoup some $600 million in funds that were withdrawn prior to its bankruptcy.

He has already settled out of court with some customers and recovered about $25 million. The rest remains in litigation, filed before the two-year statute of limitations ran out.

His view is that the loss of funds should be shared equally, on a pro-rata basis, among all customers, not only those who were left holding the bag when Sentinel filed for bankruptcy. …

But the Sentinel case still could set a precedent for MF Global if attorneys for former clients can show that MF Global used customer funds to trade its own book.

And if, y’know, Grede wins. I am not a bankruptcy lawyer but it seems like quite a stretch under the relevant bankruptcy section to claw back ordinary-course withdrawals of client money from their own segregated accounts. So I’m not too worried for the guys who got their money out, who of course include Koch Industries, which makes total sense because Koch is both a big commodities trader and a Zelig of conspiracy theories. This guy’s not worried either:
Read more »

  • 07 Sep 2011 at 5:24 PM

Cerberus-Owned Paper Maker Files For Bankruptcy, Saves Some Money On Taxes

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Apparently selling buggy whips paper for newspapers, magazines and coupons is not as profitable as – wait, who thought it was profitable? Cerberus? Sadly, that did not work out for them:

NewPage Corp., the largest North American maker of coated papers, filed for bankruptcy six years after being bought by Cerberus Capital Management LP.

NewPage had $3.4 billion in assets and $4.2 billion in debt as of June 30, according to today’s Chapter 11 filing in Wilmington, Delaware. The Miamisburg, Ohio-based company was bought by New York-based Cerberus for $2.3 billion in January 2005, and issued $900 million in junk bonds to fund the purchase. It has been unprofitable since 2006.

A 2005-vintage leveraged buyout company crushed by an unsustainable debt load and operational failure is a good excuse to mention a neat paper posted today on Harvard Law School’s Forum on Corporate Governance and Financial Regulation. The authors, three UT-Austin business professors, use tax return data to examine what happens to 1995-2007 vintage U.S. LBO targets. And they are pretty confident that they can dismiss many of the traditional explanations for how private equity firms make money – both the flattering and the unflattering ones. From the paper: Read more »

  • 22 Aug 2011 at 4:25 PM

Man With Bong Will Bring Bankrupt California Town Back From The Brink

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When Ruth Rooney bought a home in Vallejo, California in 2005, Bloomberg reports, “there were few vacancies and the historic Hill neighborhood attracted young professionals.” Then the city lost the US Navy’s Mare Island shipyard, it’s largest employer and filed for bankruptcy and now? Rooney’s property value has “dropped 70 percent in six years” and Vallejo attracts a different type of “professional” to the area. One that can do a “job” out of your car or anywhere it’s convenient to drop trou.  Read more »

  • 08 Aug 2011 at 12:15 PM

Jim Rogers: Just Give Up Already

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“It seems to me it’s physically, humanly impossible for the U.S. to ever pay off its debt ,” Rogers said. “They can roll it over and continue to play the charade, but the U.S. is bankrupt.” [CNBC]