The bankruptcy court signed off on Lehman Brothers Holdings’ plan to generate as much as $2 billion for creditors by securitizing a portfolio of commercial loans.
Judge James Peek of the U.S. Bankruptcy Court for the Southern District of New York approved Lehman’s agreement with WCAS Fraser Sullivan (WCAS-FS) to run Lehman’s $5.3 billion loan portfolio, including $3.8 billion in commercial loans and $1.5 billion in unfunded loan commitments.
The agreement calls for WCAS-FS to transfer assets from the loan portfolio into a series of static CLOs. The firm said today it expects to issue one or more CLO transactions involving collectively at least $500 million in loans within the next six months and one or more CLO transactions involving collectively at least an additional $500 million in loans within a year.
Selling securities issued by the CLOs would generate up to $2 billion for the benefits of Lehman’s estate and its creditors. Lehman will retain the equity interests in the CLOs.
The agreement also call for WCAS-FS to manage the portion of the portfolio that is deemed ineligible to be securitized, which includes the unfunded commitments and a small portion of the existing commercial loans.
“This is a great outcome for the estate and for our creditors,” Doug Lambert, mnaging director of Alvarez & Marsal, the restructuring firm managing the liquidation of the Lehman estate, said in a statement. Lambert, who is also chief executive of Lehman’s Legacy Asset Management Co., which currently manages the loan portfolio, said the agreement will provide for maximization of recovery value from our loan portfolio over the long term.
“We are very pleased with the court’s approval of the Asset Management Agreement,” said John Fraser, founder, managing partner and CIO of WCAS-FS. “We look forward to using our asset management expertise and extensive experience structuring and managing CLOs to benefit the creditors of the Lehman estate.”
WCAS-FS will hire 10 current LAMCO employees, including three senior portfolio managers, Frank Turner, Francis Chang and Patrick Marshall.
“With a significant portion of the LAMCO team coming on board to support us, we are in the best position to effectively manage the Lehman portfolio and to securitize the eligible assets in a manner that produces the best possible outcome for the estate,” said, founder, managing partner and COO Tighe Sullivan.