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Page 1 1 2
UNITED STATES BANKRUPTCY COURT
3
SOUTHERN DISTRICT OF NEW YORK
4 5
IN RE:
) )
6
LEHMAN BROTHERS HOLDINGS,
) Chapter 11 Case
INC., et al.
) Case No. 08-13555 (JMP)
7
) (Jointly Administered) Debtors.
8
)
-----------------------------)
9 10 11 12
341 MEETING OF CREDITORS
13
New York, New York
14
Wednesday, July 8, 2009
15 16 17 18 19 20 21 22
Reported by:
23
KRISTIN KOCH, RPR, RMR, CRR, CLR
24
JOB NO. 23600
25
TSG Reporting - Worldwide (877) 702-9580
Page 2 1 2 3
July 8, 2009
4
10:11 a.m.
5 6 7
341 Meeting of Creditors, held at
8
the Hilton Hotel, 1335 Avenue of the
9
Americas, New York, New York, before
10
Kristin Koch, a Registered Professional
11
Reporter, Registered Merit Reporter,
12
Certified Realtime Reporter, Certified
13
Livenote Reporter and Notary Public of the
14
State of New York.
15 16 17 18 19 20 21 22 23 24 25
TSG Reporting - Worldwide (877) 702-9580
Page 3 1 2
A P P E A R A N C E S:
3 4
UNITED STATES DEPARTMENT OF JUSTICE
5
OFFICE OF THE UNITED STATES TRUSTEE
6
33 Whitehall Street
7
New York, New York 10004
8
BY:
ANDREW D. VELEZ-RIVERA, ESQ.
9 10
WEIL, GOTSHAL & MANGES, LLP
11
Attorneys for Debtors
12
767 Fifth Avenue
13
New York, New York 10153
14
BY:
AMANDA HENDY, ESQ.
15 16
PANEL MEMBERS:
17
DANIEL EHRMANN
18
BRYAN MARSAL
19
JOHN SUCKOW
20
LORI FIFE
21
SHAI WAISMAN
22
WILLIAM FOX
23
JACK D. McCARTHY, JR.
24
JEFF FITTS
25
DOUGLAS LAMBERT TSG Reporting - Worldwide (877) 702-9580
Page 4 1 2
MR. VELEZ-RIVERA:
Ladies and
3
gentlemen, good morning.
4
Velez-Rivera.
5
United States Trustee here in the Southern
6
District of New York.
7
meeting of creditors in the bankruptcy
8
cases of Lehman Brothers Holdings, Inc. and
9
its related Chapter 11 debtors in
10 11
I am Andy
I am with the office of the
This is the joint
possession. Under an order of the court these
12
cases are jointly administered and the lead
13
case is Lehman Brothers Holdings,
14
bankruptcy case number 08-13555 (JMP).
15
We appreciate that you all are here.
16
If you haven't signed in outside when you
17
came in, please do so as you exit the
18
facility.
19
I will be presiding over the Chapter
20
11 meeting of creditors this morning on
21
behalf of my client, Diana Adams, the
22
United States Trustee.
23
This is a continued meeting of
24
creditors.
25
on January 29th when the initial meeting
Several of you were here back
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341 Creditors Meeting
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was held in these cases and the protocol
3
and the recordation of the meeting will
4
happen in much the same way.
5
There is a court reporter present
6
who will transcribe the meeting and her
7
transcription will be the official record
8
of the case.
9
or my office if you would like a
10
You can contact her directly
transcript.
11
The press is welcome to attend
12
because this is an open meeting, however,
13
no press people will be allowed to ask any
14
questions.
15
will be allowed.
16
type.
17
photos by cell phones.
18
fine, but as I mentioned, you can get the
19
transcript from the reporter.
20 21 22
No video recording of any type No audio recording of any
No photography, and that includes Note taking is just
I'd like to introduce some of the people on the podium. The gentleman who is second from the
23
last is Mr. Shai Waisman.
24
introduce everybody else.
25
MR. WAISMAN:
I will ask him
(Inaudible.)
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MR. VELEZ-RIVERA:
Okay, we will do
that. We will begin with the presentation
5
by Mr. Marsal and then at the conclusion of
6
that he will entertain questions from the
7
audience.
8
will be permitted to ask questions.
9
At that point only creditors
All right.
Oh, one other word.
10
Mr. Marsal's presentation, as he makes his
11
way up here, what you see on screen has
12
already been filed this morning, I am told,
13
in an 8-K filing and it is also available
14
on their website.
15
MR. MARSAL:
Good morning.
In
16
January we had a full room and I must tell
17
you I did not expect to get a full room
18
today, but we will do our best to update
19
you on where we are in the matter of Lehman
20
Brothers Holdings.
21
In terms of the current situation at
22
Lehman, over the last -- since we last met
23
in late January there has been steady
24
progress on asset management, claims
25
management, financial reporting and the TSG Reporting - Worldwide (877) 702-9580
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litigation aspects of this case.
3
liquidity continues to build.
4
(inaudible) thing is that we are only
5
permitted to put that liquidity into
6
permitted investments and, as you know, the
7
permitted investments are investing in
8
government guaranteed obligations, short
9
term.
Our
The
There is a very poor return.
10
Despite that fact you will see we have
11
$12 billion in cash today.
12
Reporting, our 12-31-08 balance
13
sheet will be available in early to mid
14
August.
15
to questions on valuation, what we think
16
the illiquid assets are currently valued
17
at.
18
That will provide a lot of answers
And last but not least, our
19
financial situation continues to improve
20
(inaudible) the 12-31-08 numbers.
21
get more -- we are on an accelerated basis
22
to get more current numbers.
23
running the first and second quarter
24
numbers as quickly as we possibly can.
25
We will
We are
In terms of claims management, as TSG Reporting - Worldwide (877) 702-9580
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you know, there is a Bar date on September
3
22nd.
4
intercompany -- many of the intercompany
5
guaranty issues.
6
is going to take a significant amount of
7
time.
8
that this Bar date is to really put a stake
9
in the ground and try to get a handle on
We are sorting through all the
This is very complex and
Keep in mind that it's our objective
10
what the claims are to force people to help
11
us analyze and to develop that history.
12
There has been a tremendous amount of
13
concern, particularly in Europe, and
14
confusion surrounding this Bar date.
15
are going to work with all bondholders to
16
do what's right by them.
17
said that, we are sympathetic that this is
18
a bit confusing, this process between the
19
guarantees that have been provided by
20
Holdings and the direct loans that have
21
been made to subsidiaries of Lehman.
22
We
And so having
On the litigation front, there is
23
significant litigation in progress.
24
know, we have a matter under way with Bank
25
of America and we have a discovery request TSG Reporting - Worldwide (877) 702-9580
As you
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341 Creditors Meeting
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that has been made and granted by the court
3
under the Barclay's matter.
4
number of other issues which are in the
5
process of being developed and pursued.
6
am not at liberty to really talk about
7
them, but in the coming weeks it will start
8
to become clearer as to what those
9
litigations will be.
10
We also have a
I
Last but not least, we have a
11
significant amount of preference and
12
fraudulent conveyance issues that need to
13
be addressed and business work stream has
14
been developed to address that and we will
15
be assigning legal responsibility to that
16
work stream shortly.
17
On the personnel front, I thought it
18
was valuable to show you where we are
19
today.
20
head count.
21
look down the vertical axis, you will see
22
the various departments and functional
23
areas.
24
down to the fourth from the bottom, you
25
will see is at the bank platforms, the
The Lehman estate consists of 2,405 Most of the head count, if you
Most of the head count, if you go
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Aurora bank platform and the Utah bank,
3
where we have 1,759 head count.
4
back up -- excuse me.
5
Aurora.
6
we have 20 head count.
7
estate really consists of the 428 of asset
8
teams and 164 of administrative teams in
9
terms of Lehman personnel.
10
If we go
The LBB is strictly
Below that is the Utah
Bank where
So you see that the
In terms of A&M personnel, of the
11
175 FTEs working from A&M, we have a
12
hundred which are involved in
13
administrative matters, we have 69 which
14
are directly involved in asset matters,
15
with six being involved with the bank
16
platforms.
17
way, the administration of this case has
18
required about a hundred of Alvarez &
19
Marsal FTEs.
20
So to look at it a different
Let's look at of the 175, let's look
21
at what they are doing.
22
treasury and tax front, it's clear they are
23
trying to get the books and records out,
24
trying to get them straightened and trying
25
to deal with many of the tax issues and to
On the finance,
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deal with the cash management of a
3
liquidating situation.
4
Next category, IT wind-down, we were
5
left with a challenge when Barclay's took
6
over the technology of Lehman.
7
agreement permits us two years to depend on
8
Barclay's system, at which point they can
9
cut us off of that IT system, so we have
Barclay's
10
been in a rush to get our own stand-alone
11
IT system up so we can track these assets
12
into the future.
13
This is a very project-oriented
14
group and the job should be largely done by
15
the end of this calendar year into the
16
first quarter of 2010.
17
to be independent of Barclay's by the end
18
of the first quarter certainly.
19
It's our objective
Next category, which is claims
20
management, CMS, data and forensic, the
21
head count here is really focusing on three
22
major activities.
23
activities to support the litigations that
24
are under way.
25
data requests both of the examiner and the
One is the forensic
The other is to support the
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other receivers and of our own organization
3
and trying to reconstruct some of the
4
activities that occurred prior to the
5
filing.
6
Looking at the asset teams, what you
7
see there is you see a relationship of it's
8
really one Alvarez & Marsal person to every
9
seven legacy Lehman people.
We believe
10
that that is -- the mix varies, but as you
11
see the bulk of the people on this case in
12
terms of legacy Lehman are the asset teams,
13
the bulk of the A&M people are in the
14
administrative teams.
15
In terms of key responsibilities for
16
A&M, we went over this back in January, but
17
we will do it again.
18
responsibility is maximize the recovery
19
value of the assets.
20
teams in place.
21
tasks are defined and the plans are being
22
executed as opposed to before when plans
23
were being developed.
24
what we have to do in each of those asset
25
categories and people are doing it.
The first
There are five asset
Each of those teams, the
We pretty much know
TSG Reporting - Worldwide (877) 702-9580
It's
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341 Creditors Meeting actually working quite well.
3
The second key objective, which is
4
to mitigate potential liability and
5
reconcile claims, the key open issues there
6
is resolving the derivative claim
7
termination values, the unfunded
8
commitments, getting out of those unfunded
9
commitments both in terms of the bank, the
10
bank book, as well as the private equity
11
unfunded limited partner responsibility,
12
the GP responsibility, and sort through all
13
the parent guarantees that we have for all
14
the various Lehman subsidiaries, as well as
15
to sort out from the clearing bank
16
standpoint what happened with our various
17
clearing banks.
18
claims against us which we are now
19
investigating.
20
We have identified various
The third key objective was to meet
21
the needs of the court, the U.S. Trustee
22
and the Unsecured Creditors Committee to
23
attempt to timely reporting, transparency,
24
and cost effective administration of the
25
case.
I am pretty proud of what we have TSG Reporting - Worldwide (877) 702-9580
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done to date.
3
up at a pretty good pace given the
4
complexity of this case.
5
to you is just in the case of Alvarez &
6
Marsal, we have over twenty teams, which a
7
team would be the equivalent of which would
8
work on one case normally, so this is
9
twenty times the normal A&M size case.
10
I think we have moved that
What I would say
In terms of asset reports, the first
11
key asset to talk about is the bank
12
platforms.
13
here.
14
stabilized.
15
we have written it down to levels that we
16
feel very comfortable with.
17
have on the bank platforms is with all the
18
reforms going on in Washington, things are
19
a bit confusing right now.
20
sort of changed the rules of the game in
21
terms of their willingness to permit us to
22
open up broker CDs again and the office of
23
the Thrift has really been merged into the
24
control of the currency, so there is lots
25
of confusion on that regulatory front.
There is really no surprise
On the bank asset front things are Asset values are becoming --
The concern we
The FDIC has
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The bank book, we have unfunded
3
commitment obligations continue to be
4
eliminated.
5
there has been a stampede to clean up the
6
unfunded revolvers and we have (inaudible)
7
of $3.8 billion in the pipeline, so we are
8
going to be making some major headway in
9
the next 60 days on cleaning up the
As we will discuss later,
10
unfunded liabilities.
11
well.
12
It's going very
The value of the portfolio, it's
13
stabilized.
14
increased in value over the last three
15
months.
16
The portfolio actually has
In terms of the principal
17
investments and private equity, our focus
18
was on the stabilization and to spin out
19
those funds (inaudible) general partner
20
with a significant unfunded liability or
21
unfunded responsibility.
22
that we do not meet that responsibility, as
23
you know, it jeopardizes the value of our
24
LP interest, any residual LB interest we
25
had, so we have been undertaking to try and
To the extent
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put the general partner interest in the
3
hands of others.
4
had over a hundred potential interested
5
parties.
6
partner we felt it our primary
7
responsibility given the fact we only owned
8
14 or 16 percent of the fund, the other
9
86 percent of the fund was owned by LPs, we
We held an auction and we
At the same time as the general
10
felt our responsibility was first to those
11
LPs to find out who they wanted to manage
12
the fund, and the LPs overwhelmingly voted
13
for the former management of Lehman to run
14
that fund, and that management team, the
15
private equity management team will proceed
16
on as the general partner replacing Lehman.
17
In terms of the real estate assets,
18
again, I put in there Canyon Ranch, Miami.
19
This is a situation where we actually went
20
on the offensive.
21
lender, but, in fact, we were an equity
22
holder.
23
cleaned up the mezz.
24
cleaned up the equity, cleaned up the mezz,
25
permitting us to really operate legally and
We weren't purely a
We went on the offensive.
We
We got rid of the --
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financially as owner, and then we took
3
actions to try and clean up and move the
4
280 unsold units.
5
positive.
6
moves and I think that the results to date
7
support that action.
8 9
That move has been very
The board has supported our
Fundamentally, real estate, we are shifting from being a portfolio manager who
10
is waiting for a better market to an asset
11
manager that is working the assets and we
12
will get to a better market, but we
13
recognize that as an asset manager we are
14
very much in competition with others who
15
are trying to take our value and put it
16
into their building or their piece of
17
property.
18
offensive.
19
months we have been very much more an asset
20
manager than a portfolio manager.
21
So we have gone on the I would say in the last three
On the derivative front, as you will
22
see, we have collected close to $6 billion,
23
implementing hedging strategies and various
24
other strategies of assignment which I
25
think are actually maybe making law or TSG Reporting - Worldwide (877) 702-9580
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precedent right now, so it's an interesting
3
time for us in the derivatives world.
4
On the international front, we have
5
the Lavender portfolio, which is a
6
portfolio of loans, real estate loans in
7
Japan.
8
mid teens kind of recovery.
9
proactive role along with the help of the
We went in with that looking at a We took a
10
receiver in Hong Kong and we have actually
11
presented a credit bid concept to the
12
Japanese, which was somewhat unique.
13
result of that credit bid concept was we
14
got the recovery in excess of mid 40s up
15
from the 14, 15 percent recovery range that
16
had been forecasted.
17
stalking horse in there ourselves, we were
18
able to get an honest bid out of the
19
marketplace.
20
The
So by putting a
We are in discussions on Bankhaus,
21
which is a major subsidiary and creditor of
22
ours, on trying to settle out of some of
23
the asset issues that we have with them.
24 25
On the intercompany side we still have a limited understanding of LBI TSG Reporting - Worldwide (877) 702-9580
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activities.
3
provide -- LBIE is the European, the U.K.
4
receiver.
5
we really have minimum transparency with
6
what is going on in those estates.
7
the fact that we are probably the largest
8
creditor, it's a little frustrating not
9
knowing what's happening in those estates,
The LBI and LBIE, they really
LBI is the SIPA receiver.
And
Given
10
not knowing officially what's going on in
11
those estates.
12
Our relationship with KPMG receiver
13
in Asia, we have been able to work together
14
on protocols and deal with problems, and as
15
a consequence liquidation results have been
16
really very strong.
17
International protocol, what this is
18
is trying to get receivers in various
19
countries to work together so we can get
20
out of this case before I die.
21
issues that we have are really you have got
22
rules in each country.
23
in that country will govern.
24
question about the sovereignty, but the
25
cooperation and information sharing, having
And the
Obviously the rules There is no
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a common objective of trying to do right by
3
the creditors, trying to get through these
4
matters in a fair way, trying to get
5
through these matters in a cooperative way
6
has been very important and that's what
7
Judge Peck has supported in this protocol,
8
and aside from the U.K. and Japan we have
9
received support from the administrators in
10 11
the other receiverships. Challenges.
Again, on the LBI front
12
it's not clear to us what's going on in
13
that estate, lack of transparency.
14
largest creditor we remain in the dark as
15
to the substantial amount of the ultimate
16
recovery or lack of recovery.
17
As the
On the LBIE front, we could use
18
improved cooperation.
19
conservatively-administered estate and that
20
has handicapped us.
21
It's a very
In terms of our financial
22
position -- again, there is a lot of
23
detail.
24
is any other way we could provide it,
25
though.
I apologize.
I don't think there
You see on the vertical axis is TSG Reporting - Worldwide (877) 702-9580
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all the various subsidiaries along with the
3
parent.
4
As we showed you in January, we are
5
treating this as the subsidiaries are
6
sacred, cash goes in there, cash stays in
7
there.
8
cash.
9
the cash receipts and disbursements related
There isn't a commingling of the There is a clear audit trail of all
10
to the various subsidiaries into the
11
holding company.
12
The cash, if you look across the
13
horizontal access, it is sort of an
14
activity report of where we are.
15
are today, our cash position today is
16
$12.2 billion as of 6-30.
17
various components of it in terms of the
18
debtor, non-debtor components, and all the
19
accompanying footnotes.
20
our website and it was filed as an 8-K this
21
morning.
22
Where we
You see the
Again, this is on
Bank platforms, the first one I'd
23
like to cover is the bank which is Utah.
24
This bank there has been significant
25
progress.
As you can see to the far right, TSG Reporting - Worldwide (877) 702-9580
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if you look down four lines down you see
3
RBC ratio, risk based capital.
4
trouble in December.
5
capital was down to 5.4 percent.
6
end of March the risk capital is 9.9.
7
FDIC wants you at 10 percent or better.
8
And so we have made some significant
9
headway to get there.
We ran into
Our risk based As of the The
We actually think
10
today we were in excess of 10 percent.
11
are in excess of 10 percent today.
12
believe that because of the way in which we
13
have had to mark these books, that this is
14
a very, very conservative marking that has
15
taken place in -- I shouldn't say very,
16
very.
17
(inaudible) would be very, very
18
conservative.
19
here of $572 million, we feel pretty
20
comfortable with and in fact, think it
21
could be as high as a billion dollars of
22
ultimate realization of value.
23
A very conservative.
We
We also
The next
The equity value you see
So this is an important asset for us
24
to preserve.
25
in government to close this and wrap this
Despite the efforts of some
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bank, we are doing our best to try and keep
3
this bank open so that as we wind this bank
4
down or find a buyer for this bank we can
5
realize the value of this equity.
6
Moving on to the Thrift, the other
7
institution we have other than the Utah
8
bank is called the Aurora Bank which also
9
consists of our Aurora servicing business.
10
The mortgage servicing business today
11
services $114 billion worth of mortgages.
12
It should be a profitable -- it should be a
13
business that under normal circumstances
14
without the service advances it should be
15
making the estate something on the order of
16
a hundred million dollars a year of EBITDA.
17
It's a nice business.
18
when we started the process on 9-30, the
19
risk based capital was 10.4.
20
down to 5.9 by 12-31.
21
back up to 10.3 percent.
22
because we were told that if we brought
23
that back up to 10 percent, the FDIC would
24
open the window so that we could start
25
issuing brokered CDs only to the level that
As you can see here,
It dropped
We have brought that We were hopeful,
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they existed at the time of the bankruptcy.
3
The reason we need to do that is we need to
4
match our liabilities with the asset.
5
liabilities are running off at a faster
6
pace than the assets as they are maturing.
7
If we can solve that matching problem,
8
again, this portfolio which is valued today
9
at $592 million worth of equity, we think
Our
10
is very, very conservatively priced.
11
think that the equity value here could be
12
in excess of a million dollars as well, so
13
we are, again, very interested in
14
preserving this value for the estate,
15
getting the CDs opened up and being able to
16
re-broker the CDs and being able to match
17
the asset run-off with the liability
18
run-off.
19
We
The bank book itself -- again, I
20
apologize for a busy schedule.
21
one axis, the vertical axis, is the various
22
owners of the bank loans.
23
axis consists of funded and unfunded and
24
whether it was pledged or not to JPMorgan.
25
The key is the fourth numerical column.
Down the
Across the top
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says Funded, Total.
3
Lehman banks we have just talked about, the
4
first line is the Utah bank, second line is
5
the Thrift, for a total of 2,249.
6
team is managing the next four columns plus
7
the CLOs down at the bottom; Pine, Spruce
8
and Verano, and involved in the LB Bankhaus
9
London oversight.
If you go down, the
The bank
So the responsibility of
10
the bank team is roughly about $7 billion
11
and I believe that's the value that they
12
believe this portfolio will collect out at.
13
As you see, the unfunded, we have a
14
significant unfunded problem in the far
15
right.
16
problem.
17
rock.
18
year this would go away, this would be
19
gone.
20
You see a $17 billion unfunded This continues to drop like a
I would expect by this time next
Moving on to principal investments
21
and private equity, down the vertical axis
22
you have got the various categories of
23
assets.
24
the post-petition activity.
25
we have 7,659 positions being managed by
Across the horizontal you have got Starting off
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2
this team.
3
16 billion.
4
sources and cash uses in the next two
5
columns, and looking at the portfolio,
6
Alvarez & Marsal along with management have
7
revalued the portfolio down and we have
8
taken the value of that portfolio down as
9
of 3-31 by 6 billion 347.
Pre-petition that was valued at There had been various cash
So we believe
10
that the carrying value of that as of
11
3-31-09 is $9.2 billion.
12
The current unfunded commitments,
13
2.7, and again, much of this relates to the
14
private equity group and consists of the
15
areas where we are the GP.
16
coming down as we -- again, as we dispose
17
of our GP interest in the real estate
18
portfolio, that number will also come down.
19
This will be
Moving on to the next asset
20
category, real estate assets, down the
21
vertical axis you just see the commercial
22
North America, Europe and Asia and
23
residential portfolios.
24
small residential portfolio.
25
top axis, again, the activity.
We have a very Across the
TSG Reporting - Worldwide (877) 702-9580
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started this on the 12th of -- when we
3
started with the financials that were
4
available on the 12th of September, there
5
was $22.9 billion on the books.
6
been some additional asset investments and
7
some receipts and disbursements.
8
market change we took that, again, this is
9
Alvarez & Marsal and the management of the
There have
With a
10
company, we revalued that portfolio.
11
thought that that portfolio was worth
12
$5.4 billion less than had been indicated
13
at 9-12.
14
deterioration of market conditions and
15
maybe just aggressive marks.
16
We
That would be a combination of a
The carrying value on the real
17
estate portfolio as of the end of December,
18
we will have -- like I said, this number
19
will be updated for you in mid August, but
20
it's $16 billion.
21
the scrubbing down that A&M and Lehman has
22
put this portfolio through, we have come up
23
with a value that we believe is a
24
$16 billion value.
25
is subject to changes in the market and
That is the value after
Of course, that value
TSG Reporting - Worldwide (877) 702-9580
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341 Creditors Meeting obviously timing. Moving on to the next asset, the
4
category derivatives.
5
last meeting -- this was the only part of
6
the engagement which has scared me.
7
derivative portfolio when we started the
8
process (inaudible) 1.2 million derivative
9
rate representing, as I understand,
Derivatives at the
The
10
(inaudible) telling people $6 trillion of
11
notional aggregate.
12
34, 32 -- 39.
13
notional value.
14
approximately 300 FTEs, full-time
15
equivalents, working this problem, trying
16
to get through the various termination
17
claim calculations and trying to value the
18
portfolio, and I will tell you that I am
19
very pleased where we stand.
I mean, this
20
process is picking up speed.
The last 90
21
to 120 days we have been making terrific
22
headway and we appreciate the support of
23
the Unsecured Creditors Committee as well
24
as the court.
25
supportive in trying to sort this out.
I guess it's closer to
Excuse me.
39 trillion of
And today we have
They have been very
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Moving on more specifically the cash
3
collections, you see we were tracking this
4
on a periodic basis as we met with the
5
various committees.
6
$5.8 billion in collections from the
7
derivative portfolio.
8
the team today they believe there is
9
another 5 to 5 and a half billion dollars
We are up to
I believe if you ask
10
in potential collections from this
11
portfolio and we are -- we would see this
12
trend continuing into the balance of this
13
year.
14
Now, the specifics, these are some
15
assumptions.
16
through them.
17
you can read at your leisure.
18
I don't think we need to go They are assumptions which
In terms of detail, I mean, we
19
understand that there is a real need by
20
some of the creditors to understand the
21
value of their claims.
22
importantly, to create a liquid market for
23
their claims, and that liquid market comes
24
about when people have information.
25
are going to attempt to be as responsive as
Maybe, more
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we can without sharing anything from an
3
insider perspective, inadvertently sharing
4
it, but we recognize your needs, those of
5
you who are derivative holders.
6
going to try and break out information for
7
you in the next 30 days which will lay out
8
the derivatives by subsidiary, where we
9
stand with those and what value we placed
We are
10
on those derivatives after applying
11
appropriate reserves to them, which will
12
give you at least a feel for where we are
13
subsidiary by subsidiary on a derivatives
14
book.
15
From a global standpoint, which is
16
what you are going to see now, you are
17
going to have to be patient for another 30
18
days, but by mid August, the latest, we
19
will have that information for you.
20
On the receivables side we have
21
27.1 billion and that would consist of
22
open, terminated and final settled trades.
23
You see the number of trades we are talking
24
about here on the receivables side is
25
788,000 trades.
On the payable side we
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have 16 billion in the aggregate, which is
3
owed others, and that represents 390,000
4
trades.
5
In terms of the composition of that,
6
again, the MOR we lay out.
7
receivables, $27 billion, is broken down by
8
subsidiary.
9
broken down by subsidiary.
The
The payables of 16 billion is And then we
10
attempt to break down the number of trades
11
and the activity in each one and both the
12
receivables and payables, and we will
13
expand upon that.
14
The far right-hand grouping, which
15
is the collections by subsidiary, which
16
will give you -- again, if you are trying
17
to do estimates in valuation, this
18
hopefully will -- as we fill in some of the
19
blanks, this will hopefully benefit that
20
activity, although it isn't our primary
21
responsibility.
22
extent that we can help make a liquid
23
market for this, it helps the overall
24
process.
25
We understand that to the
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2
book is, again, the active disposition of
3
open contracts.
4
open contracts have been resolved.
5
is an aggressive assignment process going.
6
It's been slow going and the hedging
7
process -- again, we are a bankrupt company
8
involved in trying to unwind derivatives
9
and now we are in the hedging game.
All but 1 percent of the There
This
10
is probably, again, one of the firsts in
11
bankruptcy.
12
hedged about a half a billion dollars.
13
hedging is being done in order to lock up
14
value so that the estate does not have to
15
worry about what is the value of that
16
derivative.
17
But the team to date has The
Legal strategy, again, read at your
18
leisure.
19
right now with a large bank which we
20
believe owes us in excess of somewhere
21
between half a billion to a billion dollars
22
and we are aggressively pursuing that
23
lawsuit and in the coming weeks you will
24
hear more about that.
25
We are in the midst of a case
On the forensic side, this warrants TSG Reporting - Worldwide (877) 702-9580
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a little closer inspection on the forensic
3
side.
4
the actions of Lehman's clearing banks,
5
JPMorgan, Bank of America and Citibank, in
6
the time period leading up to the filing.
7
We have been reconstructing the actions of
8
the DTC and the Federal Reserve during the
9
week of the filing after LBHI and before
We had been trying to reconstruct
10
the filing of LBI.
11
the disposition of Lehman's collateral by
12
the clearing banks to assess whether or not
13
it was done in a reasonable fashion, a
14
commercially reasonable fashion.
15
been reviewing the collateral given to
16
Barclay's at the time of the LBI sale to
17
make sure that what was exchanged was to
18
the benefit of the borrower.
19
We have been reviewing
We have
Last slide, in order to help you
20
understand the complexity of this case, I
21
know -- a question I get asked a lot is
22
what's the recovery going to be.
23
answer to that is there is no simple
24
answer.
25
that that question has to be first asked of
Well, the
I mean, first of all, recognize
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2
each subsidiary, that each subsidiary has
3
assets and has liabilities and the
4
recoveries and percentage recovery of one
5
subsidiary might be 60 percent and the
6
recovery of another subsidiary might be
7
30 percent.
8
treating -- while we talk on a consolidated
9
basis in terms of your recovery, you should
Our assumption is that we are
10
be talking about an individual subsidiary
11
by subsidiary and then ultimately Holdings
12
basis.
13
from a Holdings perspective what some of
14
the challenges are.
15
simplistically a recovery is a function of
16
proceeds and claims.
17
of cash, illiquid assets, lawsuit net
18
recoveries, intercompany receivables, less
19
any priority claims we have.
20
claims we just paid off is the (inaudible)
21
Guaranty Corporation where we paid them
22
approximately $120 million and that's a
23
priority that's behind us, but those type
24
of priority claims are out there and may be
25
a reduction of the proceeds.
This was an attempt to show you
In terms of -- again,
The proceeds consists
Priority
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2
As we look at those proceeds, as we
3
look at the components of proceeds, we say,
4
well, cash is obviously known today.
We
5
are in excess of 12 billion in cash.
On
6
the illiquid assets side, if you go back
7
and you add up all the stuff from this, you
8
might get a range of 35 to $40 billion on
9
the illiquid assets as of today.
That
10
won't be the hard part, because I think by
11
the time August rolls around, August of
12
this year rolls around, you will have a
13
pretty good handle on what the illiquid
14
asset portfolio looks like, subject to
15
changes in market condition what it looks
16
like.
17
handle on is what is the lawsuit and
18
recoveries going to be, if anything.
19
you won't have is what the intercompany
20
receivable has.
21
is that LBHI, Holdings, was the bank to all
22
the various subsidiaries and as a banker we
23
lent in excess of $50 billion to those
24
subsidiaries and some of those subsidiaries
25
have given us a good indication of what the
What you are not going to have a
What
Understand what that means
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2
recoveries might be and some have not, as
3
we discussed earlier in the presentation,
4
so we don't know to what extent -- how much
5
of that $50 billion is going to be
6
recovered and, like I said, while we
7
have -- we haven't identified any priority
8
claims to date that we haven't paid off,
9
but I'm sure there will be some.
10
On the claims side we will have --
11
again, shortly after the Bar date we will
12
have a pretty good handle on what the
13
scheduled claims were, what the stated
14
claims were when we went into bankruptcy.
15
That's really not the problem.
16
is the next category of claims, derivative
17
claims from the terminations.
18
of these claims there is a significant
19
amount of settlement process that's going
20
to have to take place.
21
to be finished any time soon.
22
going to take a while.
23
The problem
In the case
This is not going This is
The third component is subsidiary
24
guarantees.
25
the subsidiaries is they have to figure
What has to happen at each of
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2
out, okay, if Holdings guaranteed the
3
subsidiary, the subsidiary had a hundred
4
dollars that was guaranteed and the
5
subsidiary assets collect out $60, then
6
there would be a $40 claim that was brought
7
to the estate and, thus, what's clear is
8
that it's dependent upon the speed of the
9
other receivers in terms of getting the
10 11
calculation.
Somewhat out of our control.
And then last but not least, the
12
intercompany payables.
13
of receivables, net receivables.
14
have a much larger receivable number
15
because we have a payable number which is
16
net against the receivable number, so we
17
don't have -- again, that is dependent not
18
on our books, but on what the receivers are
19
going to agree to, which is why the
20
international protocol is important if you
21
want to (inaudible) through this thing and
22
get it any time soon.
We have $50 billion We also
23
So when people ask me -- one of the
24
frustrations is I really believe in terms
25
of valuing a claim today there is a huge TSG Reporting - Worldwide (877) 702-9580
Page 38 1
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2
unknown, but the unknown is not in the
3
assets which we control here in the
4
Holdings estate.
5
the determination of the derivatives,
6
litigation of the lawsuits, and figuring
7
out what the due to/due from is on the
8
intercompany accounts and what the
9
guarantees that are going to be called
The unknown is more in
10
upon.
11
before this becomes anything other than a
12
bowl of (inaudible).
13
who are (inaudible) I can honestly say I
14
don't have a clue, I don't have a clue what
15
the right number will be.
16
what the numerator is going to look like,
17
the numerator being the proceeds in terms
18
of cash and liquid assets, I have a feel
19
for the lawsuits, you know, a very general
20
feel for the lawsuits, but beyond that we
21
are going to be slugging through it in the
22
same timetable you will be slugging through
23
it.
24 25
So it's going to be a long time
So for those people
I do have a clue
So with that, that's the completion of the presentation.
Like I said, this is
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2
on the website.
3
8-K.
It is also filed in an
4
It's open for questions.
5
Andy, do you want to --
6
MR. VELEZ-RIVERA:
Just a word of
7
admonition.
This is not is a public
8
deposition.
If you have questions relating
9
to a piece of litigation or a specific
10
claim or if you just go too long, I will
11
cut you off.
12
the microphone which are up and down the
13
center aisle, state your name, who you
14
represent, we will get the questions under
15
way.
So if folks would step up to
16
Sir in the back.
17
SPEAKER:
Thank you very much.
My
18
name is (inaudible) Kamenski (phonetic)
19
from Paulson & Company and I have a couple
20
of questions.
21
guess it's slide 14 and slide 16 on the
22
real estate book, can you comment on the
23
loan book in terms of that last category?
24
I think you mentioned that those assets on
25
the loan book are pledged to JPMorgan in
In terms of the loan book, I
TSG Reporting - Worldwide (877) 702-9580
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341 Creditors Meeting
2
terms of the nature of that pledge and what
3
those assets are going to be, and similarly
4
for slide 16 on the 14.8 billion of real
5
estate assets controlled by other
6
receivers, if you could just comment about
7
the nature of those assets and the nature
8
of your claims against those assets, and
9
then it also refers to $4.8 billion
10
repurchase agreement that was terminated,
11
again, if you can just comment about what
12
the nature of that asset was.
13 14 15
MR. MARSAL:
Mr. Kamenski, that's a
mouthful. SPEAKER:
And I have another
16
question too, but I think if you look at
17
slide 14 first.
18
MR. MARSAL:
Okay.
Slide 14, first
19
question you raised was on the pledged
20
assets?
21
SPEAKER:
22
MR. MARSAL:
That's right. The pledged assets
23
which would be in the sixth column.
24
are asking about the 4.352 million of
25
pledged assets? TSG Reporting - Worldwide (877) 702-9580
You
Page 41 1
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2
SPEAKER:
3
MR. MARSAL:
That's correct. And the question is who
4
are they pledged to?
5
SPEAKER:
6 7 8 9
That would be the first
question. MR. MARSAL:
They are pledged to
JPMorgan. SPEAKER:
And is that part of an
10
existing financing structure or were those
11
assets -- how did the loan book get pledged
12
to JPMorgan?
13 14 15
MR. MARSAL:
How was it pledged?
John, would you like to answer that? MR. SUCKOW:
There were a number of
16
structures that were pledged to JPMorgan
17
prior to the filing of bankruptcy, so this
18
serves as collateral to a number of the
19
different agreements that existed with
20
JPMorgan.
21 22 23 24 25
SPEAKER:
Do you know offhand if
that included the rates restructure? MR. SUCKOW:
That would include the
rates restructure. SPEAKER:
Thank you.
And then I
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guess if we go to slide 16.
3
14.8 million of real estate assets
4
controlled by the receivers --
5
MR. SUCKOW:
The
I think the
6
14.8 billion and 4.8 billion were brought
7
up, when you were talking about that
8
forward of this, was an attempt to
9
reconcile that bank book as presented back
10
in January.
11
number back then was approximately 42
12
billion.
13
identified assets around the world that
14
were subject to other receivers.
15
example, Bankhaus was one of those.
16
not Bankhaus?
You may recall I think the
At that point 14.8 specifically
17
(Inaudible.)
18
MR. SUCKOW:
For No,
I don't know if you
19
heard that back there, but it's basically
20
Europe and Asia under control of LBIE, PWC
21
or Asia and KPMG, and then the 4.8 billion
22
is a repo that essentially terminated post
23
filing, so the purpose of that is to
24
reconcile the January presentation.
25
SPEAKER:
And of that 14.8, those
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2
underlying assets themselves, are they in a
3
financing structure similar to the loan
4
book or are the bottom line assets
5
unencumbered and the nature of the claims
6
through claims creditors against its
7
assets?
8 9
MR. SUCKOW: in those assets.
10 11
We are just a creditor
SPEAKER:
I have one further
question.
12
MR. VELEZ-RIVERA:
13
SPEAKER:
14
No.
Hi, Mark Heimowitz
(phonetic) from Citi.
15
Mr. Marsal, you mentioned that you
16
are looking at all of the recoveries on an
17
individual subsidiary basis and looking at
18
subsidiary guarantee claims.
19
experience now in the books and records of
20
the company, is there any entanglement
21
issue or are the books and records clean
22
and unencumbered between subsidiaries and
23
Oldco?
24 25
MR. EHRMANN:
In your
I think it's fair to
say we are still reconciling (inaudible). TSG Reporting - Worldwide (877) 702-9580
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2
SPEAKER:
And with respect to
3
transactions with the outside world, has
4
there been any work done on whether or not
5
if the creditors of the subsidiaries relied
6
on the individual credit quality of the
7
subsidiaries as opposed to the credit --
8 9
MR. EHRMANN:
We are not going to
comment on what other people rely on.
10
SPEAKER:
I guess the final
11
question, are you exploring the concept of
12
substantial consolidation of the --
13 14
MR. WAISMAN:
We are exploring all
legal options with respect to the estates.
15
MR. MARSAL:
Our approach is not to
16
assume there is going to be any substantive
17
consolidation.
18
decision that will be made later by the
19
court.
20
subsidiary, to respect the integrity of the
21
legal entity structure.
22
That will obviously be a
Our approach is to keep each
SPEAKER:
I am Fayel Romano
23
(phonetic) of SGE from Italy and I
24
represent Antonio (phonetic) creditors.
25
The question is related to guarantees. TSG Reporting - Worldwide (877) 702-9580
In
Page 45 1
341 Creditors Meeting
2
the case of those issued by Lehman
3
Treasury, the Netherlands company, since
4
there is not the Bar date and the recovery,
5
of course, yet as far as the entity is
6
concerned, it appears logic and appropriate
7
to file claims against the mother company,
8
LBHI.
9
reasonable logic (inaudible) to file for
Okay.
Would you confirm that it's a
10
guaranty for 100 percent value?
11
the first question.
12
MR. WAISMAN:
This is
We are not in a
13
position to provide advice to third
14
parties.
15
claims against the debtors, they should
16
consult the bargaining order and file
17
claims consistent with the bargaining
18
order.
19
If people believe that they have
MR. MARSAL:
It's not our intent.
20
Our intent -- we view that we are working
21
for the creditors.
22
creditor, it's not our intent to use the
23
Bar date as a shield to deny you any
24
legitimate claim.
25
if there is confusion and we will do
If you are a legitimate
So we will work with you
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2
whatever it takes to get all legitimate
3
claims captured in this process.
4
you as a beneficiary, if a guaranty was
5
made and you have filed a legitimate claim,
6
so one of the questions that have come up,
7
are we using the Bar date as a scheme to
8
avoid claims, absolutely not.
9
intention of doing that.
I mean,
We have no
What we do want
10
to do, though, is we need to move the
11
process forward.
12
distribute that cash, and it keeps growing,
13
to the various creditors, and to do that we
14
have got to get a handle on these -- a
15
reasonable handle on the claims
16
(inaudible).
17
SPEAKER:
We need to be able to
You are right.
The point
18
is that, of course, in the case you have
19
how much you get from the guaranty company,
20
let's say treasury, since you have the
21
number, you may file the difference.
22
you don't have that number, possibly within
23
the Bar date you should file for 100
24
percent.
25
logic.
If
This is I understand should be
TSG Reporting - Worldwide (877) 702-9580
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341 Creditors Meeting MR. EHRMANN:
We are actually
3
working with the Dutch administrative in
4
order to coordinate the procedure.
5
SPEAKER:
Good morning.
Vladimir
6
(inaudible).
7
One relates to the two sets of schedules of
8
assets and liabilities that were filed -- I
9
believe the first set of schedules was
I just have two questions.
10
filed March and the second set -- first
11
schedule is filed March 12th, the second
12
schedule was filed June 15th, and my
13
question relates to very significant
14
differences between those two schedules.
15
Could you just give us an idea of, first of
16
all, what was the need to file an amended
17
set of schedules, first of all, and
18
secondarily, you know, why were there
19
significant discrepancies, differences
20
between intercompany payables and
21
receivables between the March schedule and
22
June schedule?
23
MR. FOX:
Vladimir, just tell me
24
which schedules are you looking at, for
25
which debtors? TSG Reporting - Worldwide (877) 702-9580
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341 Creditors Meeting SPEAKER:
I think some of the
3
biggest differences are down with the LBSF
4
and LCPI.
5
MR. FOX:
The biggest difference is
6
the LBSF and LCPI schedules that were filed
7
in the first instance were based upon
8
September 14th closing information and in
9
the second instance were based upon the
10
beginning of October closing information,
11
which was on or about the petition date of
12
those two entities.
13
difference that took place.
14
certain offsets that are described in the
15
notes to each of those.
16
you can discuss this with us off line and
17
we can go through a detailed reconciliation
18
with you.
19
whole group, but those are globally
20
essentially the differences there.
21
So you have a timing You also have
If you would like,
I don't want to hold up the
SPEAKER:
And just essentially did
22
you net intercompany secured against --
23
secured receivables against secured
24
payables and unsecured receivables against
25
unsecured payables? TSG Reporting - Worldwide (877) 702-9580
Page 49 1 2
341 Creditors Meeting MR. FOX:
We did not net the
3
receivables against payables, per se.
4
there was a position that was repoed out to
5
either LBI or LBIE, we did net those
6
positions, but we didn't net any unsecured
7
position.
8
SPEAKER:
Right.
Understood.
If
And
9
just regarding intercompany receivables
10
collectively, I believe the most recent
11
schedules for LB does show approximately
12
150 billion of intercompanies and I believe
13
Mr. Marsal mentioned earlier in the
14
presentation there is about a $50 billion
15
number.
16
between the 150 and the 50 billion
17
intercompany with respect to LBHI?
18 19 20 21 22
Can you describe the difference
MR. MARSAL:
I think he is going to
look to me now. MR. FOX:
I think those are two
different definitions. MR. MARSAL:
The 50 billion that I
23
used was --- in the presentation that was
24
being made in July in London to the various
25
receivers, that's a net number. TSG Reporting - Worldwide (877) 702-9580
I think it
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341 Creditors Meeting
2
may be a net number and you may be
3
referencing a gross number.
4
MR. EHRMANN:
5
SPEAKER:
That's right.
Understand.
And then the
6
LBHI initial September 14th -- as of
7
September 14th, '08 MOR, there are some
8
very large significant securities assets,
9
about 5.9 million in government securities,
10
10.7 million in mortgage-related
11
securities, 5.3 billion in corporate
12
securities.
13
proceeds, cash proceeds, are they still
14
property of LBHI or do they get somehow
15
netted out or essentially foreclosed on as
16
counter-parties, you know, get called in in
17
repo lines?
18
LBHI?
19
Are those securities or
Are those still assets of
MR. FOX:
Many of those positions
20
were repoed, so again, either LBI or LBIE,
21
they were netted against the intercompany
22
amounts.
23
claim against LBI for those positions and
24
will be making a claim to LBIE as well.
25
However, the estate did make a
SPEAKER:
Understood.
Last
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2
question.
3
of debtors collectively I believe you
4
mentioned earlier in the presentation that
5
you are valuing the asset at 27 billion and
6
you mentioned early this morning that about
7
6 billion has been collected and you are
8
anticipating further collections of about 5
9
billion, that's 11.
Related to the derivative assets
So the question is
10
what's the difference between the 27
11
accounting value and the 11 that you have
12
and anticipate to collect this year
13
(inaudible)?
14
MR. MARSAL:
The problem is I
15
probably misspoke.
16
gave you something that was an internal
17
estimate of what we thought was a
18
reasonable target, but I think from an
19
accounting standpoint what Bill Fox will be
20
establishing is reserves against that
21
receivable as we go through rivet by rivet
22
of what's the likelihood we are going to
23
collect on that derivative based on the
24
circumstances surrounding it, and when we
25
have done that as a team, the team has
I am giving you -- I
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2
estimated roughly an overall collection
3
about $11 billion, which is where the
4
number comes from.
5
to date.
6
5.2 billion.
7
nature, so I said $6 billion.
8 9 10
13
11 billion would mean another My team is conservative by
SPEAKER:
So, in other words, you
are thinking about a 15 billion reserve against a 26 billion asset?
11 12
We have collected 5.8
MR. MARSAL:
Yes, that would be
the -SPEAKER:
What about the derivative
14
liability, is that also estimated to be
15
sort of in the 20 billions?
16
MR. MARSAL:
Not prepared to
17
estimate that.
18
get to the Bar date.
19
date when we get everything in, then I
20
think we can begin to intelligently answer
21
that question.
22
that today.
It's too early.
We need to
Then after the Bar
We only have fragments of
23
SPEAKER:
Thank you very much.
24
SPEAKER:
Paul (inaudible) from
25
(inaudible).
I have a follow-up on
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2
Mr. Kamenski's question.
3
explain on the 14.8 billion of real estate
4
held by other administrators how much --
5
have you been able to look into those
6
intercompanies and figure out how many
7
other third-party creditors there are?
8
Were those primarily financed by
9
(inaudible)?
10 11 12 13 14 15 16
MR. SUCKOW:
Can you just
I don't think we know
the answer to that at this point. SPEAKER:
And what entities do they
sit in? MR. SUCKOW:
I don't think we have
an answer to that. SPEAKER:
The 4.8 billion, can you
17
just explain that a little bit better, what
18
exactly that is?
19
MR. FITTS:
These were for five
20
different repos that were secured by
21
mortgage collateral that were actually
22
folded (inaudible).
23
SPEAKER:
And how did it make it
24
into the presentation?
25
there for a reason.
Obviously it's
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2
MR. FITTS:
As John said, we were
3
trying to reconcile back to the January
4
presentation.
5 6
SPEAKER:
of the estate or --
7 8
So would that be an asset
MR. FITTS:
I don't think it's an
asset of the estate.
9
MR. MARSAL:
I think we probably
10
should reconcile it, because it sounds like
11
it is very confusing for people, but,
12
again, it was done at a point where we were
13
earlier on in the process with not as good
14
a fact base or understanding as we have
15
today.
16
MR. FITTS:
In the January
17
presentation it was shown as that.
18
number was 22 here and 42 there.
19
trying to make sure people understood.
20
SPEAKER:
The We were
And then on the cash
21
flows, obviously it's been impressive.
22
Again, back of the envelope trying to
23
figure out how much is coming into the
24
estate, there seems to be monthly inflows
25
of commercial paper and holdings. TSG Reporting - Worldwide (877) 702-9580
I am
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341 Creditors Meeting
2
sure you have modelled out over the next
3
year, two years, what the cash flows might
4
be.
5
Can you discuss that a little bit. MR. MARSAL:
Well, we are not
6
prepared to share that model with you, but
7
you are absolutely right, we have each of
8
the asset teams now trying to forecast
9
their cash requirements and cash fall-off
10
from each of the asset teams and that is --
11
it's a planning process which we should be
12
in a lot better shape by the middle of the
13
fall to be able to share with people.
14
as of today what we know we have, as we
15
look at this presentation, we have 12
16
billion in consolidated cash.
17
up all the pieces that we talked about, the
18
illiquid assets, you come out with a number
19
of 35 to $40 billion of illiquid assets and
20
value that the teams think is there today,
21
subject to changing market conditions,
22
clearly, and subject to time, but so you
23
add those two numbers and you have got two
24
pieces of -- components that I talked about
25
in the last schedule, but the other
But
If you add
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2
components we don't have, and what I would
3
say to you is by the middle of the fall we
4
should have much greater clarity on the
5
question that you just asked as well as
6
what the values are of the illiquid asset
7
portfolios.
8
SPEAKER:
9
MR. VELEZ-RIVERA:
10
SPEAKER:
Quick follow-up. No.
Next.
(Inaudible) from Elliot
11
(inaudible).
12
derivative receivable, the collections
13
running at 800 million to a billion a month
14
and sort of projecting out a $12 billion
15
cash balance by year end, and then what
16
happens then?
17
you know, what's behind the $16 billion
18
shortfall?
19
you expect to end up with at the end of the
20
year.
21
So this notion of the
Collections just stop or,
The 27 less the 11 or 12 that
MR. MARSAL:
What I would say is we
22
are trying to do a derivative by
23
derivative, receivable derivative by
24
derivative analysis, and the team has come
25
back and said we think a realistic target TSG Reporting - Worldwide (877) 702-9580
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2
given all the facts and circumstances we
3
have with some of these things is
4
approximately 11 to $12 billion ultimate
5
collection on the derivative.
6
to shoot to do better than that, Mr. Ryan
7
(phonetic), as you well know, but we are --
8
as to what would happen with the rest of
9
the book, it would mean there would be a
We are going
10
write-off because there would be a
11
legitimate termination taking place there
12
on the part of that counterparty.
13
the extent it's not legitimate, we will
14
fight it in court, we will pursue it, but
15
the conclusion is that when you establish
16
reserves, it's your team's best guess on
17
what the collectability is of that asset as
18
opposed to what's on the books today.
19
MR. EHRMANN:
And to
The value comes from
20
three primary sources and some of that is
21
in the litigation strategy chart, Ryan.
22
Essentially as the estate went into
23
bankruptcy, the SPVs, who were our
24
counterparties, basically submitted the
25
estate to subordination and we are actively TSG Reporting - Worldwide (877) 702-9580
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2
fighting that in court and hence we are
3
pretty reluctant to putting a number on
4
that given that we are in the process of
5
trying to maximize recoveries there.
6
The second piece that has actually
7
impaired most of the value is a lot of
8
counterparties are arguing multiple sorts
9
of setup rights, and as you know we are
10
actively fighting that in court and
11
obviously hoping that we will maximize our
12
recovery by winning those cases.
13
And then the third piece is that
14
when we went into bankruptcy the street
15
basically got a big advantage over us
16
because it had an option to terminate us at
17
favorable validation terminations, and so
18
we are in the process of challenging those
19
and that's why, as I pointed, out at high
20
level we have estimated that the shortfall
21
is going to be pretty substantive.
22
Obviously as we win the cases in court, we
23
can hope that will enhance the recovery.
24 25
SPEAKER:
So to be clear, based on
everything that's done publicly and this TSG Reporting - Worldwide (877) 702-9580
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341 Creditors Meeting
2
litigation strategy, you say that the swaps
3
facing the SPVs are worthless, what it
4
sounds like, if I am interpreting this
5
correctly, from an accounting perspective
6
you are fully reserved against those
7
positions.
8
MR. EHRMANN:
9
SPEAKER:
10 11
That's correct.
And then the follow-up
question -MR. MARSAL:
What I am saying is
12
that what we are going to do is they are
13
going to shoot me if I haven't given you an
14
estimate on the value of collection.
15
That's the best thinking of the team today.
16
As we get smarter -- and we are getting
17
smarter.
18
derivatives.
19
are going to have derivatives down cold.
20
Trust me.
21
smarter and we believe that will help us on
22
the receivable collection, so we should
23
improve that number, and it should result
24
in a reduction of the claims on the payable
25
side, but I would say that there is
We are learning about By the end of this process we
And we are getting smarter and
TSG Reporting - Worldwide (877) 702-9580
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2
probably a lot more upside to that estimate
3
than downside.
4
mid August is a different number, so don't
5
get too carried away.
6
is a number which is higher or lower than
7
that number based on more input, but in
8
August when we come up with a number we are
9
going to come up with a number that's going
10
to say we believe that this is a legitimate
11
derivative value that -- on the receivables
12
that we are going to ultimately collect
13
out, just as we have done in real estate,
14
proprietary assets and bank loans.
15
SPEAKER:
And what you might see in
What you might see
Did I hear someone here
16
characterize that as a short-term target?
17
Maybe not.
18
So clearly the derivatives book even
19
between the 12th and early October
20
experienced quite a bit of volatility.
21
see that in the balance sheets and a lot of
22
the receivables remain open in October into
23
the first quarter.
24
very precision here, because I don't think
25
I will get it, but directionally you talk
We
I guess I won't ask
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341 Creditors Meeting
2
about the movement in your derivative
3
receivable on a mark-to-market basis
4
setting aside recoverability considerations
5
just generally post filing, giving so much
6
for the value remaining in open contracts
7
for an extended period.
8 9
MR. EHRMANN:
I think directionally
generally the portfolio moved in the
10
estate's favor (inaudible) September to
11
date as a result of a reduction in interest
12
rates and in the credit (inaudible).
13
obviously already (inaudible) locked into
14
those values (inaudible).
15
terminated trades locked into the value.
16
On the open trades we are actively pursuing
17
hedging strategies and assignment
18
strategies, and as Bryan pointed out, that
19
trade population is now point 5 percent of
20
the entire population, so we realize that
21
we have ways to go, but I think we have
22
secured (inaudible) crystallized --
23
(inaudible) receivable (inaudible).
24 25
THE WITNESS:
We
All the
Point 5 percent of the
trades by number or value? TSG Reporting - Worldwide (877) 702-9580
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341 Creditors Meeting
2
MR. EHRMANN:
3
SPEAKER:
Thank you.
4
SPEAKER:
(Inaudible) from
By number.
5
(inaudible) Capital Management.
6
quick question I guess for clarifying on
7
the intercompany receivables and payables.
8
In some of your working assumptions with
9
respect to mutuality and set-off, can you
10
clarify whether it's just pure accounting
11
and general ledger sort of procedures with
12
respect to the varying line items, no
13
receivable, derivative receivable, repo,
14
reverse repo or an intercompany
15
receivable/payable, if you are treating all
16
those in an aggregate as you look to set
17
off between entity 1 and entity 1A
18
depending on which side of the balance
19
sheet, or are you treating those, you know,
20
in some sort of priority waterfall
21
depending upon what type of intercompany
22
sort of line item exists?
23
MR. FOX:
Just a
The general ledger
24
information that goes into the financial
25
statements that you saw, whether it be TSG Reporting - Worldwide (877) 702-9580
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341 Creditors Meeting
2
intercompany or (inaudible) positions,
3
there was just a general accounting
4
consistent with the way the company
5
reported it in the past as far as which was
6
listed first, which was listed second,
7
et cetera.
8
that was looked at vis-a-vis the bankruptcy
9
proceeding and realization of the assets
There is no particular priority
10
consistent with past practices of the
11
company.
12
SPEAKER:
But just to clarify, so in
13
aggregate LBHI was a net creditor in
14
another debtor estate.
15
of whether $10 of the $20 receivable was
16
classified as a repo as opposed to just a
17
traditional intercompany receivable, or is
18
that repo at the estate which (inaudible)
19
creditor (inaudible) and considered a
20
secured claim?
21
MR. FOX:
It was irrespective
In the September 14th
22
financial statement all the amounts were
23
shown on a gross basis, whether it was repo
24
or it was just a cash advance with respect
25
to intercompany balances.
When we updated
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341 Creditors Meeting
2
the October 3rd or October 5th MOR
3
statements for companies like LBSF, LCPI,
4
et cetera, if they had repo positions on an
5
intercompany basis, as I mentioned before,
6
we did net those.
7
those positions against LBI if that's where
8
the repo was and we are also claiming them
9
against LBIE.
However, we did claim
10
SPEAKER:
Thank you.
11
SPEAKER:
(Inaudible) from Davis &
12
Kemper.
13
27 million of assets.
14
are related to SPEs would you say, roughly,
15
and subject to subordination?
16 17 18
Quick question in regards to the
MR. MARSAL: question again? SPEAKER:
How much of those
I'm sorry, ask the I didn't hear that.
Of the 27 billion of
19
derivative assets or receivables, how many
20
are related to SPEs?
21
MR. EHRMANN:
22
SPEAKER:
23
MR. VELEZ-RIVERA:
24
SPEAKER:
25
(inaudible).
Close to 40 percent.
Okay.
Thank you. Next.
Nat (inaudible) from Bryan, you mentioned earlier
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2
taking more of an active role with respect
3
to the real estate portfolio.
4
understanding the cash from the estate is
5
being used to support that real estate
6
portfolio going forward.
7
cash has been used to date, how much cash
8
may be used going forward, who makes the
9
decisions as to how the real estate
It's my
I guess how much
10
business should be, will be, can be run
11
going forward?
12
MR. MARSAL:
Okay.
Let me see if we
13
can go back to the schedule which will help
14
us answer that.
15
schedule across the top you have got Lehman
16
Brothers Holdings, start of the process
17
there was 1.148 in cash.
18
in cash.
19
which shows what makes -- you see the
20
2938.7 at the very top there by Holdings,
21
first line?
22
2938.7 and keep it.
23
page 11.
24
change in cash during that period, and if
25
we go down, we look down about midway, you
Okay.
If you look at this
Today we have 2.9
Then we have the next schedule
2938.7.
Let's go to that Next page, 2938.7,
And if we go -- this is the
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2
have got real estate capital calls, you
3
have -- do you follow me?
4
capital calls, 328.2.
5
components are Fortress, Prologis, other
6
commercial, and residential real estate,
7
17.3.
8
would be captured above and I am trying to
9
see where in the footnotes they have any
Real estate
The largest
In terms of any inflows, inflows
10
inflows.
11
real estate inflows, second line it says
12
"receipts from subsidiaries," 736.7.
13
line, real estate was the source of cash at
14
$411 million.
15
and you have disbursements of 328.
16
about that for a tight answer?
Jeff, help me if you can.
The
First
So you got receipts of 411
17
SPEAKER:
18
MR. MARSAL:
How
Pretty good. Who is making the
19
decision?
20
follows.
21
have the bankruptcy court -- four.
22
Trustee, bankruptcy court, at least in
23
accordance with certain areas, but
24
bankruptcy court, the Unsecured Creditors
25
Committee and the board of directors of
Well, the protocols are as I really have three bosses.
TSG Reporting - Worldwide (877) 702-9580
I
U.S.
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2
Lehman Brothers.
3
protocols which we respect for various
4
decision-making authority and anything up
5
to -- I think in real estate it's zero to
6
$10 million requires the head of the team
7
to sign off on it.
8
$10 million requires either John Suckow or
9
Bill Fox to sign off on it as well as the
What we have are we have
Anything in excess of
10
head of the team.
11
$25 million requires my sign-off, John,
12
Bill, team head and the manager proposing
13
it, and we, in turn, would take it -- we
14
would take it to the Unsecured Creditors
15
Committee and probably the court.
16
in excess of $50 million we would take to
17
the court, the unsecured-creditors
18
committee and that whole line-up I just
19
went through.
20
balances -- and the board.
21
Creditors Committee and the court would all
22
be involved in a material decision of that
23
nature.
24
been developed and it's been working pretty
25
well, pretty well for the last -- maybe a
Anything in excess of
Anything
So we have checks and The Unsecured
So we have protocols that have
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2
blip here or there on derivatives, we are
3
maybe not communicating as well as we
4
could, but aside from an occasional blip it
5
has been working pretty well.
6
MR. VELEZ-RIVERA:
7
SPEAKER:
Next question.
Alex (inaudible), Bank of
8
America.
9
the 27 billion is fixed in special purpose
You mentioned that 40 percent of
10
entities.
11
that 40 percent?
12
Have you reserved fully against
MR. MARSAL:
No.
We are not going
13
to answer that.
14
anything about a specific -- what we
15
actually reserved against.
16
you that there is 27 billion.
17
until the middle of August, you are going
18
to have a revaluing of that 27 billion
19
which will have a calculation of gross
20
reserves against gross receivables.
21
no circumstances are we ever going to tell
22
you what we reserved against an individual
23
settlement.
24
wouldn't want us to do that.
25
We are not going to answer
We kind of told If you wait
That would be foolish.
SPEAKER:
Well, so just the 27
TSG Reporting - Worldwide (877) 702-9580
Under
You
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341 Creditors Meeting billion --
3 4 5
MR. EHRMANN:
Has no reserves in
there. SPEAKER:
Right, but then we spoke
6
about 16 billion of reserves and
7
effectively taking against that 27
8
billion --
9
MR. EHRMANN:
Bryan said that there
10
is an internal estimate, is what I think
11
you said, of $11 billion.
12
reserves have been taken.
13
SPEAKER:
Okay.
So no formal
So of the 16
14
billion theoretical uncollectability, you
15
had mentioned that it was broken up into
16
three groups, right?
17
counterparties and one was terminations.
18
Can you give us a rough estimate of the
19
split between that 16 billion of
20
uncollectability?
21
MR. EHRMANN:
One was SPVs, one was
I think the split is
22
exactly in that order, i.e., the biggest
23
portion would be SPVs, the next would be
24
(inaudible), and the last would be
25
terminations. TSG Reporting - Worldwide (877) 702-9580
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SPEAKER:
And the calculation of
3
terminations, that's just closing costs
4
or --
5
MR. EHRMANN:
It's a number of
6
different situations.
7
termination dates, disagreement on
8
valuation methodologies, disagreements on
9
the sources of information, disagreements
It's disagreement on
10
on the actual population that's being
11
trying to be collected.
12
number of valuation related issues.
13
MR. MARSAL:
It's a various
But we don't want to
14
get into -- the last thing I want to do is
15
step on a land mine.
16
told you the $11 million number because now
17
you are pursuing it.
18
going to get a number that's going to be a
19
gross number on derivatives with a gross
20
reserve against it and we are never going
21
to share with you how much we have reserved
22
against an individual derivative, because
23
obviously we are in pretty serious
24
negotiations with people, but for
25
accounting purposes we have to.
I should never have
In August you are
TSG Reporting - Worldwide (877) 702-9580
So you are
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341 Creditors Meeting
2
not going to get any more detail from us.
3
The only detail you might get is something
4
that would not jeopardize our negotiating
5
position.
6
SPEAKER:
Well, I am not trying to
7
do that.
8
mentioned the 27 billion and then you said
9
that 40 percent of that 27 is basically
Just roughly, you know, you
10
(inaudible) the vast majority of those
11
three buckets are (inaudible) and if I do
12
that 40 percent, it's about 11 billion, so
13
now in this theoretical uncollectability I
14
am trying to sort of --
15
MR. EHRMANN:
The reason why I think
16
we are reluctant to break it out, because
17
obviously one of our key strategies is to
18
litigate these issues right to the end, so
19
putting a number on that right now would --
20
MR. MARSAL:
We are just not going
21
to give you the kind of response that you
22
keep gunning for.
23
you how much those SPVs were reserved.
24
Sorry.
25
next question.
We are not going to tell
You can forget it.
Go on to the
TSG Reporting - Worldwide (877) 702-9580
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341 Creditors Meeting SPEAKER:
All right.
Next question.
3
I guess in the last meeting you spoke about
4
a certain amount of collateral that you
5
believed JPMorgan held.
6
sort of those discussions and how much do
7
you think -- how much collateral do you
8
think JPMorgan still has?
9
MR. MARSAL:
Where are we in
Because of the
10
sensitive nature of it, I think we have got
11
to be very careful about what we say here.
12
MR. SUCKOW:
I was just going to
13
say, it's a substantial amount of
14
collateral and I think for the benefit of
15
the creditors the less detail we share with
16
you, the better.
17
SPEAKER:
18
MR. VELEZ-RIVERA:
19
SPEAKER:
Thank you. Next question.
I am (inaudible).
I just
20
have a quick question on slide 16 when you
21
talked about the 22 billion, 23 billion of
22
pre-petition real estate.
23
last 341 you talked about 11 billion of
24
this being pledged to somebody.
25
much of this is pledged or unpledged now?
I think in your
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341 Creditors Meeting
2
MR. FITTS:
Equating it back to the
3
January 341 hearing?
4
SPEAKER:
5
MR. FITTS:
Yes. The answer is
6
approximately $6 billion is unpledged and
7
the other 11 is included in what was shown
8
before under Chase and Bankhaus.
9
going to get you back to the $17 billion
10
That's
number.
11
SPEAKER:
Right.
And I think
12
somebody asked a related question earlier,
13
but can you talk about like you talked
14
about for the derivatives which buckets
15
this real estate is at?
16
(inaudible), or where is this actually
17
located?
18
MR. FITTS:
Is it all at LBHI,
The vast majority is
19
LBHI and LCPI and I think the third big
20
bucket would be PAMI.
21
the three big legal entity buckets.
22 23
SPEAKER:
I'm sorry, what was the
third bucket?
24 25
I think those are
MR. FITTS:
PAMI.
It's a non-debtor
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2
SPEAKER:
And my final question in
3
regards to the cash balances, you talk
4
about segregated funds there.
5
segregated for?
6
MR. MARSAL:
Page 10.
Who are they
It varies.
7
mean, you have got -- look at the
8
footnotes.
9
per court order, stipulation or debtors'
10
I
Footnote D, "amounts segregated
preliminary estimate of third party funds."
11
MR. SUCKOW:
The vast majority of
12
this, the billion 5, relates to collateral
13
pledged in the structures, from some of the
14
previous (inaudible), would be cash either
15
(inaudible) position, principal or interest
16
related to structures where (inaudible).
17
SPEAKER:
So it's pledged
18
(inaudible) the SPVs and not to clearing
19
banks?
20
MR. SUCKOW:
It could be -- a
21
significant chunk of this, I can't be
22
exact, but a significant chunk is related
23
to clearing banks.
24
SPEAKER:
25
MR. MARSAL:
Okay.
Thank you.
It would be captured in
TSG Reporting - Worldwide (877) 702-9580
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2
structures and those structures are
3
securitized (inaudible) and collateral
4
(inaudible) clearing bank.
5
SPEAKER:
John (inaudible) from
6
(inaudible).
7
then I'd like to go back to the
8
derivatives.
9
claims for accounting purposes were the
First a question on repo and
Can you tell us on the repo
10
repo claims that were intercompany
11
accounted any differently than the
12
third-party repo claims?
13
MR. FOX:
We accounted for them the
14
same way in the latest MOR statements where
15
we have offset the repo claim against the
16
loan for purposes of the balance sheet
17
presentation.
18
SPEAKER:
And as a follow-up, when
19
repo was done intercompany, let's say a
20
repo asset, would any collateral move or
21
was it just kept somewhere within the
22
estate?
23
MR. FOX:
Collateral would be held
24
by the counterparty, so we don't know if
25
any of that collateral moved, per se, so if TSG Reporting - Worldwide (877) 702-9580
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341 Creditors Meeting
2
it was pledged -- if it was repoed through
3
LBI, that's information that we need to get
4
from LBI.
5
SPEAKER:
Understood.
Back to the
6
derivatives then, of the 27 billion,
7
(inaudible) 40 percent are facing SPVs.
8
the remainder of them, can you give us a
9
feel for what dollar amount are open
10
transactions?
11
like 9 billion of prior exposure.
12 13 14 15
Of
I think it was something
MR. EHRMANN:
Based on the basis of
the 27 billion, it's about 30 percent. SPEAKER:
30 percent would be open?
And if you think about that same --
16
MR. EHRMANN:
17
SPEAKER:
More like 20 percent.
And of the same amount of
18
derivatives that are not facing SPVs, can
19
you give us a feel for what percent of that
20
are (inaudible) derivatives as opposed to
21
commodities and so forth?
22
MR. EHRMANN:
23
SPEAKER:
No, I can't.
And of the 20 percent that
24
are still open, can you give us a feel
25
whether that is interest rates, commodities TSG Reporting - Worldwide (877) 702-9580
Page 77 1 2 3
341 Creditors Meeting or something different? MR. EHRMANN:
I think the important
4
piece in the open population is to know
5
what portion of the population the value
6
has been locked in and I think that we feel
7
that probably 30 percent of the value has
8
been locked in through hedges or other
9
mechanisms and we are working on locking in
10 11
the remainder in the next coming weeks. SPEAKER:
So just to clarify, the
12
20 percent that's open, 30 percent of that
13
or 6 percent of the total?
14
MR. EHRMANN:
15
SPEAKER:
Thank you very much.
16
SPEAKER:
(Inaudible) with Elliot.
Yes.
17
40 percent of the value of the derivative
18
facing SPVs, can you tell me how much of
19
that is rates and how much of that is CDS?
20
MR. EHRMANN:
21
was just asked.
22
information with me.
23
SPEAKER:
I think that question
I don't have the
I mean, I believe that
24
back in May there was a disclosure that
25
3.6 billion of the CDS value was facing TSG Reporting - Worldwide (877) 702-9580
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341 Creditors Meeting
2
SPEs.
3
in terms of this 40 percent split?
4
Is it fair to still think about that
MR. EHRMANN:
I am not sure what
5
disclosure you are referring to when you
6
say "back in May."
7
SPEAKER:
8
MR. MARSAL:
9
I'm not sure where it is. I just really believe
that you need to be patient until mid
10
August, get the breakdown of what we have
11
in mid August, and then to the extent that
12
that's not satisfactory, give a call to
13
Daniel and we, to the best of our ability,
14
without sharing insider information, will
15
try and clarify that schedule for you.
16
MR. EHRMANN:
17
CDS.
18
percentage.
19
The vast majority is
I just don't want to give you a
MR. MARSAL:
I know where all of
20
this is going.
21
I just hate giving you parts of information
22
like this.
23
You are going to have hopefully a much
24
clearer picture than you have today.
25
You know where it's going.
You gotta wait another 30 days.
SPEAKER:
Thank you.
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341 Creditors Meeting
2
SPEAKER:
Tim (inaudible) from
3
(inaudible).
4
questions.
5
assets on the sub participation of LCPI
6
show up in the schedules (inaudible)?
I have got a couple of First of all, where do the
7
MR. MARSAL:
8
SPEAKER:
9
Yes, the sub participation
(inaudible).
10 11
LCPI?
MR. MARSAL:
I am not sure -- I
still -- a little slower for the reporter.
12
SPEAKER:
Where do assets on sub
13
participation at LCPI show up in these
14
operating reporting schedules?
15
MR. FOX:
I don't think -- can you
16
rephrase your question a little
17
differently.
18
the --
19 20 21
SPEAKER:
I'm not sure we understand
Any assets that are
subparted out to the third parties by LCPI. MR. FOX:
If LCPI is the legal
22
holder of the asset, then it's shown on
23
LCPI's books and records, so you are asking
24
if there are any participations, economic
25
participations for third parties? TSG Reporting - Worldwide (877) 702-9580
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341 Creditors Meeting
2
SPEAKER:
Yes.
3
MR. FOX:
That's what you are
4
asking?
5
SPEAKER:
6
MR. LAMBERT:
Where does it show up? If it's a funded
7
participation, it shows up on the legal
8
entity that actually funded that
9
participation and that would be the same
10 11
case for any unfunded liabilities. SPEAKER:
All right.
And then just
12
a quick follow-up.
13
that the joint real estate assets, LCPI,
14
LBHI, is that the same for the private
15
equity assets?
16
MR. FOX:
I think you mentioned
No.
Private equity assets
17
are held by LBHI and also held by a
18
non-debtor sub known as LB1 group, as well
19
as a few other non-debtor subs.
20
THE WITNESS:
21
SPEAKER:
Thank you.
Scott (inaudible) from
22
(inaudible) Partners.
23
40 percent of the derivatives involved in
24
SPEs, is it fair to say that that's mostly
25
at LBHI?
Regarding the
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341 Creditors Meeting
2
MR. EHRMANN:
3
MR. MARSAL:
Yes. Yes.
If you look at
4
the schedule, page 21, LBSF, the receivable
5
is 21.7 and 27.6.
6
SPEAKER:
7
Deutsche Bank.
8
assets that were pledged to repos in the
9
most recent schedules, were those done on
Jeff (inaudible) from When you guys net out the
10
book basis or some estimate of market
11
value?
12
MR. FOX:
The netting of the repo
13
assets were done on a book basis.
14
have a current market valuation for those
15
situations.
16
SPEAKER:
Okay.
Would there be
17
potentially any deficiency claims
18
associated with those?
19
MR. FOX:
We don't
There could be, yes, there
20
could be some deficiency claims if it went
21
that way.
22
It's possible.
SPEAKER:
And on the 60 percent away
23
from the SPEs, can you give us any big
24
buckets as far as counterparty type?
25
there a lot of monoline exposure there as TSG Reporting - Worldwide (877) 702-9580
Is
Page 82 1 2 3
341 Creditors Meeting opposed to corporates, broker/dealers? MR. EHRMANN:
Most of the trades
4
were with major financial institutions.
5
35 percent of the trade population was with
6
what we call big banks.
7
SPEAKER:
The only reason why I ask
8
is I thought those guys would have posted
9
collateral on almost a nightly basis, so
10
any receivable would have more likely been
11
due from someone not posting collateral
12
regularly.
13
MR. EHRMANN:
A lot of the -- as a
14
result of the bankruptcy and the
15
termination right that the counterparty
16
has, a lot of those receivables turned into
17
payables.
18
SPEAKER:
Thanks a lot.
19
SPEAKER:
Michael Stern from
20
(inaudible).
21
much farther, but I just want to make sure
22
I understand clearly, whatever estimate you
23
guys have internally now for recovery,
24
whatever number will end up being the
25
estimated recovery in the schedules that
Not to belabor this issue too
TSG Reporting - Worldwide (877) 702-9580
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341 Creditors Meeting
2
come out in August, will that take into
3
account all three of the factors that you
4
talked about, the SPE issue, the set-off
5
issue and the termination issue where your
6
best estimates in the aggregate of those
7
things will come out, or will they assume
8
that what people have asserted is where you
9
start and then you get some recovery after
10 11 12 13
that? MR. EHRMANN:
What we will try and
provide is realizable value (inaudible). SPEAKER:
(Inaudible) termination
14
disputes and all of the other factors,
15
where do you think those things will come
16
out on a conservative basis at the end of
17
the day?
18
MR. EHRMANN:
That's correct, with
19
the caveat that we are going to try to
20
protect our leading positions as much as we
21
can in order to enhance that recovery.
22
SPEAKER:
Okay.
23
SPEAKER:
Joe Jackson from
24
(inaudible).
25
$50 billion intercompany receivable at LBHI
My question is related to the
TSG Reporting - Worldwide (877) 702-9580
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341 Creditors Meeting
2
that you mentioned on a net basis.
3
you let us know when that disclosure is
4
going to be available, how you net to get
5
to 50 billion?
6
there is $150 billion receivable listed on
7
the schedules as amended as opposed to the
8
same date as the original schedules, and
9
then there is a $90 billion payable, some
Could
Because as I look at it,
10
of which is to the entity BV.
11
just took 150 minus that 90, it still
12
remains $60 billion, which is in excess of
13
the 50.
14
don't always relate to the same entities
15
the receivables are due from, so it seems
16
like the aggregate balance should actually
17
be significantly in excess of 50.
18
If you even
Not only that, but the payables
MR. MARSAL:
It's an incomplete
19
story we are given.
20
generation of cash and focusing on the
21
illiquid assets that we have within our
22
control.
23
with that and getting smarter and smarter
24
and we know what we have to do with those
25
assets.
Our focus has been
Obviously we are coming to grips
Now our focus of attention has to TSG Reporting - Worldwide (877) 702-9580
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341 Creditors Meeting
2
go to the intercompany.
3
to say to you in a nice way to the other
4
receivers, though, to you about the other
5
receivers is that the success of our
6
understanding the situation on the
7
intercompany largely depends on the
8
cooperation and the transparency that we
9
have from the other receivers, in
What we are trying
10
particular, LBI and LBIE.
11
that we have that transparency and we have
12
that assistance, then, in fact, we can
13
address your intercompany questions,
14
because those are the two largest players
15
out there, two of the larger players out
16
there that we today do not have a handle
17
on.
18
because that hasn't been the focus.
19
focus has been on the assets, the illiquid
20
assets and the collection of cash.
21
that focus is changing, so now we have to
22
focus not on the derivative receivables,
23
but now we have to focus on the derivative
24
payables.
25
intercompany receivables due to and due
To the extent
Now, it hasn't been an issue to date, The
Now
We have to focus on the
TSG Reporting - Worldwide (877) 702-9580
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2
from.
It's just a different stage of the
3
case.
So we are going to get a lot smarter
4
on the intercompany, but we are nowhere
5
near there (inaudible).
6
SPEAKER:
Do you anticipate using a
7
similar methodology where you have a
8
reserve against the intercompany
9
receivables or is that not --
10 11 12
MR. MARSAL:
We haven't even talked
about that. SPEAKER:
Okay.
And then last
13
question.
14
the updated schedules and the updated MORs,
15
I think October 2nd and October 4th, it
16
listed the derivative assets and
17
liabilities as being updated to the extent
18
that you had updated valuations or updated
19
to the extent that you had received
20
termination notices.
21
idea of percentage of that book that was
22
either updated for updated values or that
23
was terminated, i.e., percentage of the
24
assets that, for instance, LBSF, I believe
25
it went from 20 billion to around
In terms of the derivatives on
Could you give us an
TSG Reporting - Worldwide (877) 702-9580
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2
$21 billion, what percentage of those
3
derivatives was updated subsequent to 9-14
4
or 10-2 or 9-30?
5
MR. EHRMANN:
So the vast majority
6
is (inaudible) the disclaimer points out,
7
all of the trade population (inaudible)
8
thousands which represents approximately
9
85 percent of the trade population, we
10
actually did not
11
Those are September 12th valuations.
12
the remainder, I will say two-thirds of
13
those we had updated historical information
14
that we got through our transition services
15
agreement with Barclay's.
16
imperfect valuations, but they were
17
valuations.
18 19 20
SPEAKER:
update the valuations. For
Those qualify as
And some of them related
to terminated values? MR. EHRMANN:
Exactly.
Some of them
21
related to terminated valuations, but we
22
would have then used the valuation that we
23
got through our transition services
24
agreement with Barclay's.
25
SPEAKER:
Thank you.
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2
SPEAKER:
(Inaudible).
Just a
3
follow-up question on private equity real
4
estate assets.
5
assets you said that a majority of the
6
assets are actually controlled by LBHI and
7
LB1.
8
roughly how much is controlled by LBHI
9
vis-a-vis LB1 and is LB1 a hundred percent
10 11
On the private equity
Could you provide a rough estimate of
owned by LBHI? MR. McCARTHY:
With regard to
12
private equity assets and going down
13
through the entities here for the assets
14
classes, in the private equity group, which
15
is basically the Lehman Brothers, this is
16
on page 15, on the private equity group
17
those are the former Lehman Brothers
18
private equity funds, independently
19
operated funds, (inaudible) management
20
companies there.
21
controlled by LBHI, but through non-debtor
22
vehicles that are sole purpose vehicles.
23
So I would say that those are primarily
24
controlled by LBHI at that point.
25
direct investments, the majority of those
Those (inaudible)
TSG Reporting - Worldwide (877) 702-9580
The
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341 Creditors Meeting
2
direct investments are through LB1 Group
3
and the majority GP and LP investments are
4
through LB1 group.
5
are through a variety of other subsidiaries
6
and, again, most of those are non-debtor
7
subsidiaries (inaudible).
8
investment is not controlled by us or by
9
the receivers, they are primarily KPMG
10 11
The Asian investments
The Asian
controlled assets, which is at the bottom. SPEAKER:
Okay.
Thanks.
And could
12
you provide a break-out of real estate
13
assets?
14
MR. McCARTHY:
I don't have on the
15
real estate side a break-out.
16
you that LCPI as a general matter was used
17
for the straight bank debt.
18
where the equity investments were, I don't
19
have with me the break-out of (inaudible).
I can tell
(Inaudible)
20
SPEAKER:
Thank you.
21
SPEAKER:
I am (inaudible).
My
22
understanding is a number of the U.S.
23
debtors that were produced as subsidiaries
24
of LBI were transferred into ALI, Inc. at
25
the end of September.
I would be
TSG Reporting - Worldwide (877) 702-9580
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341 Creditors Meeting
2
interested in how you think about any claim
3
on value of ALI or the U.S. debtors within
4
ALI moving to LBI?
5
debtors who were previously subsidiaries of
6
LBI that were then transferred back in
7
September to ALI, Inc.
8
there is a note held by LBI against ALI.
9
would be interested in your thoughts on
There were some U.S.
My understanding is I
10
potential value that might go to LBI from
11
ALI or the U.S. debtors as (inaudible) that
12
note.
13
MR. WAISMAN:
The note you refer to
14
(inaudible) to LBI for the transfer of
15
those subsidiaries contemplates a valuation
16
of those assets and entities that were
17
transferred.
18
completed, so we can't speculate as to what
19
value may or may not be transferred as a
20
result.
21
SPEAKER:
That valuation has not been
And that valuation is
22
against ALI, is it potentially against some
23
of the value from the new ALI subs that
24
were previously LBI?
25
MR. WAISMAN:
The valuation
TSG Reporting - Worldwide (877) 702-9580
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341 Creditors Meeting
2
contemplated is a total valuation of all of
3
the entities slash assets that were
4
transferred to (inaudible).
5
SPEAKER:
Is there an estimate of
6
when the valuation of that note might be
7
completed and is there going to be
8
disclosure on it?
9
MR. WAISMAN:
There will be
10
disclosure when it is completed, there
11
definitely will be disclosure, but we don't
12
have an estimate at this point.
13
SPEAKER:
So it's unclear whether
14
value from ALI or the U.S. subs that are
15
part of that will (inaudible) LBI?
16
MR. WAISMAN:
That's right.
It is
17
unclear whether there will be any value
18
transferred or what -- if there is value,
19
what the rate will be.
20
estimation.
There is no
21
SPEAKER:
Thank you.
22
SPEAKER:
Rubin (inaudible) from
23
Capital Management.
24
LBI mentions that if there are potential
25
claims from its former subsidiaries,
In one of its filings
TSG Reporting - Worldwide (877) 702-9580
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341 Creditors Meeting
2
presently (inaudible) subsidiaries were
3
subordinated, some of those subsidiaries
4
will be (inaudible) creditors.
5
understanding that those claims are
6
actually subordinated at LBI?
7
MR. WAISMAN:
8
filing.
9
referring to?
Is it your
You are referring to a
Is there a specific filing you are
10
SPEAKER:
11
MR. WAISMAN:
In -- yes.
(Inaudible).
I think you are
12
referring to a report filed by the SIPA
13
trustee for Lehman Brothers, Inc.
14
SPEAKER:
15
MR. WAISMAN:
That's correct. So not (inaudible) a
16
filing that these estates made.
17
trustee refers to certain subordination
18
agreements.
19
that (inaudible) are reviewing.
20
have to come to a determination as to their
21
enforceability.
22
The SIPA
Obviously those are agreements
SPEAKER:
Understood.
We will
So you have
23
no opinion as of yet as to whether that
24
subordination or -- let me rephrase it.
25
many of those schedules you have filed TSG Reporting - Worldwide (877) 702-9580
In
Page 93 1
341 Creditors Meeting
2
those include former subsidiaries of LBI
3
and you present some intercompany claims
4
against LBI.
5
this point that any of those are
6
subordinated or is it your understanding
7
that they are not subordinated as
8
represented in any of the schedules?
9
Is it your understanding at
MR. WAISMAN:
I think it's fair to
10
say that it is not our understanding either
11
way.
12
agreements and the situation and we will
13
come to a conclusion.
14
We are reviewing the subordination
SPEAKER:
Thanks.
Last follow-up
15
question of that.
16
that there was a subordination agreement,
17
can you (inaudible) if there was
18
subordination or was there any
19
consideration given to the subsidiaries,
20
because it sounds like potentially
21
subordination was to satisfy regulatory
22
requirements at LBI, (inaudible) which
23
accrues to the owner of LBI, which is LBHI.
24
Since these were subsidiaries of LBI, was
25
there any (inaudible) consideration
Inasmuch as the claim is
TSG Reporting - Worldwide (877) 702-9580
Page 94 1
341 Creditors Meeting
2
provided for subordinated claims as far as
3
you know?
4
MR. WAISMAN:
That is an excellent
5
question.
6
that we would be looking at in reviewing
7
the subordination agreements and their
8
enforceability.
9 10
It's certainly one of the issues
SPEAKER:
Thank you very much.
MR. VELEZ-RIVERA:
11
Next question.
12
SPEAKER:
Anyone else?
Paul Goldschmidt
13
(phonetic) from Kings Street.
14
schedules there was a table Other
15
Transfers, it was 10A, and it included cash
16
of about 7 billion in JPMorgan, 1.7 billion
17
of money funds and 8 billion of securities
18
that had been transferred to JPMorgan in
19
the last six months.
20
that was included in the schedules and do
21
you mind just elaborating on what these
22
transfers are?
23
of 2 billion and Bank of America
24
(inaudible) the litigation, 500 million.
25
In the filed
Can you explain why
There is one from Citigroup
MR. WAISMAN:
I believe the schedule
TSG Reporting - Worldwide (877) 702-9580
Page 95 1
341 Creditors Meeting
2
you are referring to requires the debtor to
3
list all transfers of property within a
4
certain period of time.
5
debtor's belief that that information that
6
was put on the schedule was responsive to
7
the question asked by the schedules and
8
that's why it was listed on the schedules.
9
SPEAKER:
It was the
The weird one to me was
10
the JPMorgan, the 8 billion, just because
11
there were so many other transfers of other
12
counterparties.
13
highlighted?
14
Why was the 8 billion
MR. WAISMAN:
That was a significant
15
transfer of property of the estate or of
16
Lehman Brothers occurring within the
17
specified period that we felt we had an
18
obligation to list in response to the
19
question that the schedule was asking.
20
SPEAKER:
And is that outside of the
21
JPMorgan pledges that are in the
22
presentation?
23
MR. WAISMAN:
I believe that the
24
presentation encompasses some of the
25
collateral posted to JPM, but whether all TSG Reporting - Worldwide (877) 702-9580
Page 96 1
341 Creditors Meeting
2
of it was -- the schedule is simply in a
3
certain time span, I believe it was the 90
4
day schedule you are referring to, and
5
this -- what was presented today reflects
6
ultimately all that was posted without
7
regard to time, so there may be a slight
8
disconnect there, but they do overlap.
9
SPEAKER:
And Bryan, obviously I
10
don't want to put words in your mouth, but
11
when you talk to the Wall Street Journal or
12
talk about the assets in the estate, you
13
often talk about the real estate assets and
14
you sort of ignore the pledges when you
15
talk about them.
16
expecting them to be unpledged or --
17
MR. MARSAL:
Is that because you are
No.
What has happened
18
is the moneys you are talking about in the
19
schedule, assets are cash that was pledged
20
within a 90-day period to JPMorgan,
21
Citibank and others for clearing bank or
22
other issues that would come out.
23
done within the last -- the 90 days prior
24
to the proceeding.
25
we owe them $1.3 billion against what they
That was
JPMorgan believes that
TSG Reporting - Worldwide (877) 702-9580
Page 97 1
341 Creditors Meeting
2
call a clearing overdraft, 1.3 billion.
3
Against that clearing overdraft of
4
1.3 billion is all these pledged assets
5
which remain, so I think they are -- in our
6
view they seem to be very well
7
collateralized, so when we look at the
8
pledged assets, the reason we refer to
9
them -- I think there is what, John, 6 or 7
10
billion of pledged assets against it,
11
approximately?
12
MR. SUCKOW:
Yes.
13
MR. MARSAL:
6 or 7 billion of
14
pledged assets against the 1.3 billion that
15
they claim we owe them, and we are not
16
agreeing that we owe that 1.3, by the way,
17
but in any event we believe there is
18
substantial value going to flow to us and
19
that's why we were managing those assets
20
(inaudible).
21 22
SPEAKER:
And is the cash on top of
the pledged assets?
23
MR. MARSAL:
Yes.
24
MR. SUCKOW:
Just to be clear, the
25
1.3 is netted cash so it was 8 billion less TSG Reporting - Worldwide (877) 702-9580
Page 98 1 2 3
341 Creditors Meeting 6.7 billion. SPEAKER:
And have you done work on
4
what you think --
5
MR. SUCKOW:
As I said earlier, we
6
could spend a lot of time talking about
7
legal theory.
8
would benefit this group too much.
9 10 11
I really don't think it
MR. VELEZ-RIVERA:
That's it.
Next
question. SPEAKER:
Bob Ryan with Elliot
12
(inaudible).
13
$16 billion figure that was tossed out
14
there, I think there is some risk that the
15
counterparties that we are facing, maybe in
16
this room, when they read that number they
17
may dig in their heels from a litigation
18
perspective, concluding that, hey, we are
19
home free, Lehman doesn't think they can
20
collect on the claim.
21
worthwhile for the estate, if it chose to
22
set the record straight on the record,
23
about the lengths to which Lehman is
24
prepared to go to protect its rights and to
25
enforce its claims (inaudible) its facing
I think there is -- given the
I think it would be
TSG Reporting - Worldwide (877) 702-9580
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341 Creditors Meeting
2
SPVS or other counterparties.
3
MR. VELEZ-RIVERA:
4
SPEAKER:
Your question is?
To what lengths will
5
Lehman go to protect its rights on the
6
claims?
7
MR. MARSAL:
Just assume whatever it
8
takes.
9
going to defend the rights of the estate
Whatever it takes.
I mean, we are
10
and I would assume -- unfortunately, I
11
shouldn't have thrown the number out, but
12
it's out there.
13
that number.
14 15 16
SPEAKER:
My bad.
We now will beat
You can change it if you
want. MR. MARSAL:
We will beat that
17
number.
18
number haven't missed a number yet.
19
The people who have provided the
MR. WAISMAN:
I think it is also
20
fair to say that there are a significant
21
number of people devoted to the task from
22
A&M, from Lehman, and a very large team at
23
Weil Gotshal as well spending a significant
24
amount of time focused on the issues and as
25
Bryan points out they will (inaudible). TSG Reporting - Worldwide (877) 702-9580
Page 100 1
341 Creditors Meeting
2
MR. EHRMANN:
One last point on
3
that.
4
that currently we have settled 8 percent of
5
the population, (inaudible) of the 106,400
6
counterparties.
7
that is we are fighting for every single
8
dollar tooth and nail and I think it's a
9
message that the street has -- has been
10
I think it's also important to note
One of the reasons for
(inaudible) by the street.
11
SPEAKER:
Do some of those claims
12
include claims that otherwise absent
13
settlement would have been reserved
14
against?
15
MR. EHRMANN:
Had they been
16
reserved, they would have been reserving in
17
the values that we received, i.e., fair
18
value or (inaudible).
19
MR. VELEZ-RIVERA:
20
SPEAKER:
Next question.
John (inaudible), Goldman
21
Sachs.
22
guess the timing for resolution of all the
23
derivative claims?
24
milestones that can occur before initial
25
distribution can actually be made?
Could you just talk about your best
Can you just talk about
TSG Reporting - Worldwide (877) 702-9580
Page 101 1 2
341 Creditors Meeting MR. MARSAL:
Well, what you see in
3
that last schedule, in terms of timetables,
4
I don't think realistically that until the
5
third anniversary of this case, as
6
disappointing as that might be.
7
your asset picture will be clear by the
8
second anniversary of the case.
9
think your derivative picture will be clear
I think
I don't
10
until the third anniversary of the case,
11
and as far as intercompany is concerned, we
12
just don't know.
13
the other receivers are going to approach
14
things and whether or not transparency --
15
we also don't appreciate the complexity of
16
their problems, so because we have no
17
transparency -- I'm not casting any
18
aspersions at anyone.
19
don't know.
20
we are really behind the 8 ball on LBIE.
21
Until we have those answers, this thing
22
will go on and on and on, but in terms of
23
the derivatives, I would say the third
24
anniversary of the case would be our best
25
guess today.
We don't know how quickly
I am just saying we
We are in the dark on LBI and
TSG Reporting - Worldwide (877) 702-9580
Page 102 1 2
341 Creditors Meeting SPEAKER:
Can a distribution occur
3
before complete resolution of that or
4
(inaudible) --
5
MR. MARSAL:
That has been discussed
6
with the Unsecured Creditors Committee,
7
it's just a topic, so you should -- I am
8
going to ask you to direct your comments to
9
the Unsecured Creditors Committee and their
10
counsel if you have got something to put
11
on, but I certainly would not be opposed if
12
we can legitimately -- if we could put a
13
reasonable box around the claims,
14
particularly at subsidiary levels.
15
sure it's going to be possible at Holdings,
16
but it's possible at a subsidiary level
17
they can do that.
18
SPEAKER:
I'm not
And then last question,
19
going back to non-debtor subsidiaries that
20
hold private equity and other principal
21
investing assets, just entities such as LB1
22
Group, how many of those entities actually
23
have third-party liabilities where those
24
asset values actually (inaudible) back up
25
to the holding company? TSG Reporting - Worldwide (877) 702-9580
Page 103 1 2
341 Creditors Meeting MR. McCARTHY:
There is actually
3
very few third-party liabilities with
4
regard to debt at any of those entities.
5
The largest liability listed in the
6
right-hand column, which is the (inaudible)
7
commitments, so those have to be considered
8
liabilities.
9
number has been reduced from 4.4 billion as
So related to that, that
10
of the bankruptcy date down to what we
11
listed here at 2.7, so as Bryan mentioned
12
earlier, we are working very diligently on
13
that number and managing that down.
14
MR. MARSAL:
The big threat to the
15
valuations on the private equity portfolio
16
is aside from market risk, which is the
17
market deteriorating, the big threat to us
18
is not being able to fund our obligation
19
and thus suffering a severe dilution
20
(inaudible).
21
task at hand, is how to manage that in a
22
way that's sensible for the estate given
23
what we have in investment exposure, and
24
yet in a liquidating situation putting more
25
money into a private equity fund is very
We have been -- that's the
TSG Reporting - Worldwide (877) 702-9580
Page 104 1
341 Creditors Meeting
2
difficult for us to do.
3
difficult to swallow on one hand, but the
4
losses are difficult to swallow on the
5
other, so that balancing act is really --
6
is a major challenge.
I mean, it's very
7
MR. VELEZ-RIVERA:
8
Ladies and gentlemen, thank you.
9 10 11
Anyone else?
The meeting of the creditors is concluded. Thank you again. (Time noted:
12:07 p.m.)
12 13 14 15 16 17 18 19 20 21 22 23 24 25
TSG Reporting - Worldwide (877) 702-9580
Page 105 1 2
C E R T I F I C A T E
3 4
STATE OF NEW YORK
)
5 6
) ss.: COUNTY OF NASSAU
)
7 8
I, KRISTIN KOCH, a Notary Public
9
within and for the State of New York, do
10
hereby certify that the within is a true
11
and accurate transcript to the best of my
12
ability of the proceedings held on July 8,
13
2009.
14
That I am not related to any of the
15
parties to this action by blood or
16
marriage; and that I am in no way
17
interested in the outcome of this matter.
18
IN WITNESS WHEREOF, I have hereunto
19
set my hand this 9th day of July, 2009.
20
-------------------------
21
KRISTIN KOCH, RPR, RMR, CRR
22 23 24 25
TSG Reporting - Worldwide (877) 702-9580
UNITED STATES BANKRUPTCY COURT
3
SOUTHERN DISTRICT OF NEW YORK
4 5
IN RE:
) )
6
LEHMAN BROTHERS HOLDINGS,
) Chapter 11 Case
INC., et al.
) Case No. 08-13555 (JMP)
7
) (Jointly Administered) Debtors.
8
)
-----------------------------)
9 10 11 12
341 MEETING OF CREDITORS
13
New York, New York
14
Wednesday, July 8, 2009
15 16 17 18 19 20 21 22
Reported by:
23
KRISTIN KOCH, RPR, RMR, CRR, CLR
24
JOB NO. 23600
25
TSG Reporting - Worldwide (877) 702-9580
Page 2 1 2 3
July 8, 2009
4
10:11 a.m.
5 6 7
341 Meeting of Creditors, held at
8
the Hilton Hotel, 1335 Avenue of the
9
Americas, New York, New York, before
10
Kristin Koch, a Registered Professional
11
Reporter, Registered Merit Reporter,
12
Certified Realtime Reporter, Certified
13
Livenote Reporter and Notary Public of the
14
State of New York.
15 16 17 18 19 20 21 22 23 24 25
TSG Reporting - Worldwide (877) 702-9580
Page 3 1 2
A P P E A R A N C E S:
3 4
UNITED STATES DEPARTMENT OF JUSTICE
5
OFFICE OF THE UNITED STATES TRUSTEE
6
33 Whitehall Street
7
New York, New York 10004
8
BY:
ANDREW D. VELEZ-RIVERA, ESQ.
9 10
WEIL, GOTSHAL & MANGES, LLP
11
Attorneys for Debtors
12
767 Fifth Avenue
13
New York, New York 10153
14
BY:
AMANDA HENDY, ESQ.
15 16
PANEL MEMBERS:
17
DANIEL EHRMANN
18
BRYAN MARSAL
19
JOHN SUCKOW
20
LORI FIFE
21
SHAI WAISMAN
22
WILLIAM FOX
23
JACK D. McCARTHY, JR.
24
JEFF FITTS
25
DOUGLAS LAMBERT TSG Reporting - Worldwide (877) 702-9580
Page 4 1 2
MR. VELEZ-RIVERA:
Ladies and
3
gentlemen, good morning.
4
Velez-Rivera.
5
United States Trustee here in the Southern
6
District of New York.
7
meeting of creditors in the bankruptcy
8
cases of Lehman Brothers Holdings, Inc. and
9
its related Chapter 11 debtors in
10 11
I am Andy
I am with the office of the
This is the joint
possession. Under an order of the court these
12
cases are jointly administered and the lead
13
case is Lehman Brothers Holdings,
14
bankruptcy case number 08-13555 (JMP).
15
We appreciate that you all are here.
16
If you haven't signed in outside when you
17
came in, please do so as you exit the
18
facility.
19
I will be presiding over the Chapter
20
11 meeting of creditors this morning on
21
behalf of my client, Diana Adams, the
22
United States Trustee.
23
This is a continued meeting of
24
creditors.
25
on January 29th when the initial meeting
Several of you were here back
TSG Reporting - Worldwide (877) 702-9580
Page 5 1
341 Creditors Meeting
2
was held in these cases and the protocol
3
and the recordation of the meeting will
4
happen in much the same way.
5
There is a court reporter present
6
who will transcribe the meeting and her
7
transcription will be the official record
8
of the case.
9
or my office if you would like a
10
You can contact her directly
transcript.
11
The press is welcome to attend
12
because this is an open meeting, however,
13
no press people will be allowed to ask any
14
questions.
15
will be allowed.
16
type.
17
photos by cell phones.
18
fine, but as I mentioned, you can get the
19
transcript from the reporter.
20 21 22
No video recording of any type No audio recording of any
No photography, and that includes Note taking is just
I'd like to introduce some of the people on the podium. The gentleman who is second from the
23
last is Mr. Shai Waisman.
24
introduce everybody else.
25
MR. WAISMAN:
I will ask him
(Inaudible.)
TSG Reporting - Worldwide (877) 702-9580
Page 6 1
341 Creditors Meeting
2 3 4
MR. VELEZ-RIVERA:
Okay, we will do
that. We will begin with the presentation
5
by Mr. Marsal and then at the conclusion of
6
that he will entertain questions from the
7
audience.
8
will be permitted to ask questions.
9
At that point only creditors
All right.
Oh, one other word.
10
Mr. Marsal's presentation, as he makes his
11
way up here, what you see on screen has
12
already been filed this morning, I am told,
13
in an 8-K filing and it is also available
14
on their website.
15
MR. MARSAL:
Good morning.
In
16
January we had a full room and I must tell
17
you I did not expect to get a full room
18
today, but we will do our best to update
19
you on where we are in the matter of Lehman
20
Brothers Holdings.
21
In terms of the current situation at
22
Lehman, over the last -- since we last met
23
in late January there has been steady
24
progress on asset management, claims
25
management, financial reporting and the TSG Reporting - Worldwide (877) 702-9580
Page 7 1
341 Creditors Meeting
2
litigation aspects of this case.
3
liquidity continues to build.
4
(inaudible) thing is that we are only
5
permitted to put that liquidity into
6
permitted investments and, as you know, the
7
permitted investments are investing in
8
government guaranteed obligations, short
9
term.
Our
The
There is a very poor return.
10
Despite that fact you will see we have
11
$12 billion in cash today.
12
Reporting, our 12-31-08 balance
13
sheet will be available in early to mid
14
August.
15
to questions on valuation, what we think
16
the illiquid assets are currently valued
17
at.
18
That will provide a lot of answers
And last but not least, our
19
financial situation continues to improve
20
(inaudible) the 12-31-08 numbers.
21
get more -- we are on an accelerated basis
22
to get more current numbers.
23
running the first and second quarter
24
numbers as quickly as we possibly can.
25
We will
We are
In terms of claims management, as TSG Reporting - Worldwide (877) 702-9580
Page 8 1
341 Creditors Meeting
2
you know, there is a Bar date on September
3
22nd.
4
intercompany -- many of the intercompany
5
guaranty issues.
6
is going to take a significant amount of
7
time.
8
that this Bar date is to really put a stake
9
in the ground and try to get a handle on
We are sorting through all the
This is very complex and
Keep in mind that it's our objective
10
what the claims are to force people to help
11
us analyze and to develop that history.
12
There has been a tremendous amount of
13
concern, particularly in Europe, and
14
confusion surrounding this Bar date.
15
are going to work with all bondholders to
16
do what's right by them.
17
said that, we are sympathetic that this is
18
a bit confusing, this process between the
19
guarantees that have been provided by
20
Holdings and the direct loans that have
21
been made to subsidiaries of Lehman.
22
We
And so having
On the litigation front, there is
23
significant litigation in progress.
24
know, we have a matter under way with Bank
25
of America and we have a discovery request TSG Reporting - Worldwide (877) 702-9580
As you
Page 9 1
341 Creditors Meeting
2
that has been made and granted by the court
3
under the Barclay's matter.
4
number of other issues which are in the
5
process of being developed and pursued.
6
am not at liberty to really talk about
7
them, but in the coming weeks it will start
8
to become clearer as to what those
9
litigations will be.
10
We also have a
I
Last but not least, we have a
11
significant amount of preference and
12
fraudulent conveyance issues that need to
13
be addressed and business work stream has
14
been developed to address that and we will
15
be assigning legal responsibility to that
16
work stream shortly.
17
On the personnel front, I thought it
18
was valuable to show you where we are
19
today.
20
head count.
21
look down the vertical axis, you will see
22
the various departments and functional
23
areas.
24
down to the fourth from the bottom, you
25
will see is at the bank platforms, the
The Lehman estate consists of 2,405 Most of the head count, if you
Most of the head count, if you go
TSG Reporting - Worldwide (877) 702-9580
Page 10 1
341 Creditors Meeting
2
Aurora bank platform and the Utah bank,
3
where we have 1,759 head count.
4
back up -- excuse me.
5
Aurora.
6
we have 20 head count.
7
estate really consists of the 428 of asset
8
teams and 164 of administrative teams in
9
terms of Lehman personnel.
10
If we go
The LBB is strictly
Below that is the Utah
Bank where
So you see that the
In terms of A&M personnel, of the
11
175 FTEs working from A&M, we have a
12
hundred which are involved in
13
administrative matters, we have 69 which
14
are directly involved in asset matters,
15
with six being involved with the bank
16
platforms.
17
way, the administration of this case has
18
required about a hundred of Alvarez &
19
Marsal FTEs.
20
So to look at it a different
Let's look at of the 175, let's look
21
at what they are doing.
22
treasury and tax front, it's clear they are
23
trying to get the books and records out,
24
trying to get them straightened and trying
25
to deal with many of the tax issues and to
On the finance,
TSG Reporting - Worldwide (877) 702-9580
Page 11 1
341 Creditors Meeting
2
deal with the cash management of a
3
liquidating situation.
4
Next category, IT wind-down, we were
5
left with a challenge when Barclay's took
6
over the technology of Lehman.
7
agreement permits us two years to depend on
8
Barclay's system, at which point they can
9
cut us off of that IT system, so we have
Barclay's
10
been in a rush to get our own stand-alone
11
IT system up so we can track these assets
12
into the future.
13
This is a very project-oriented
14
group and the job should be largely done by
15
the end of this calendar year into the
16
first quarter of 2010.
17
to be independent of Barclay's by the end
18
of the first quarter certainly.
19
It's our objective
Next category, which is claims
20
management, CMS, data and forensic, the
21
head count here is really focusing on three
22
major activities.
23
activities to support the litigations that
24
are under way.
25
data requests both of the examiner and the
One is the forensic
The other is to support the
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other receivers and of our own organization
3
and trying to reconstruct some of the
4
activities that occurred prior to the
5
filing.
6
Looking at the asset teams, what you
7
see there is you see a relationship of it's
8
really one Alvarez & Marsal person to every
9
seven legacy Lehman people.
We believe
10
that that is -- the mix varies, but as you
11
see the bulk of the people on this case in
12
terms of legacy Lehman are the asset teams,
13
the bulk of the A&M people are in the
14
administrative teams.
15
In terms of key responsibilities for
16
A&M, we went over this back in January, but
17
we will do it again.
18
responsibility is maximize the recovery
19
value of the assets.
20
teams in place.
21
tasks are defined and the plans are being
22
executed as opposed to before when plans
23
were being developed.
24
what we have to do in each of those asset
25
categories and people are doing it.
The first
There are five asset
Each of those teams, the
We pretty much know
TSG Reporting - Worldwide (877) 702-9580
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3
The second key objective, which is
4
to mitigate potential liability and
5
reconcile claims, the key open issues there
6
is resolving the derivative claim
7
termination values, the unfunded
8
commitments, getting out of those unfunded
9
commitments both in terms of the bank, the
10
bank book, as well as the private equity
11
unfunded limited partner responsibility,
12
the GP responsibility, and sort through all
13
the parent guarantees that we have for all
14
the various Lehman subsidiaries, as well as
15
to sort out from the clearing bank
16
standpoint what happened with our various
17
clearing banks.
18
claims against us which we are now
19
investigating.
20
We have identified various
The third key objective was to meet
21
the needs of the court, the U.S. Trustee
22
and the Unsecured Creditors Committee to
23
attempt to timely reporting, transparency,
24
and cost effective administration of the
25
case.
I am pretty proud of what we have TSG Reporting - Worldwide (877) 702-9580
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2
done to date.
3
up at a pretty good pace given the
4
complexity of this case.
5
to you is just in the case of Alvarez &
6
Marsal, we have over twenty teams, which a
7
team would be the equivalent of which would
8
work on one case normally, so this is
9
twenty times the normal A&M size case.
10
I think we have moved that
What I would say
In terms of asset reports, the first
11
key asset to talk about is the bank
12
platforms.
13
here.
14
stabilized.
15
we have written it down to levels that we
16
feel very comfortable with.
17
have on the bank platforms is with all the
18
reforms going on in Washington, things are
19
a bit confusing right now.
20
sort of changed the rules of the game in
21
terms of their willingness to permit us to
22
open up broker CDs again and the office of
23
the Thrift has really been merged into the
24
control of the currency, so there is lots
25
of confusion on that regulatory front.
There is really no surprise
On the bank asset front things are Asset values are becoming --
The concern we
The FDIC has
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The bank book, we have unfunded
3
commitment obligations continue to be
4
eliminated.
5
there has been a stampede to clean up the
6
unfunded revolvers and we have (inaudible)
7
of $3.8 billion in the pipeline, so we are
8
going to be making some major headway in
9
the next 60 days on cleaning up the
As we will discuss later,
10
unfunded liabilities.
11
well.
12
It's going very
The value of the portfolio, it's
13
stabilized.
14
increased in value over the last three
15
months.
16
The portfolio actually has
In terms of the principal
17
investments and private equity, our focus
18
was on the stabilization and to spin out
19
those funds (inaudible) general partner
20
with a significant unfunded liability or
21
unfunded responsibility.
22
that we do not meet that responsibility, as
23
you know, it jeopardizes the value of our
24
LP interest, any residual LB interest we
25
had, so we have been undertaking to try and
To the extent
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put the general partner interest in the
3
hands of others.
4
had over a hundred potential interested
5
parties.
6
partner we felt it our primary
7
responsibility given the fact we only owned
8
14 or 16 percent of the fund, the other
9
86 percent of the fund was owned by LPs, we
We held an auction and we
At the same time as the general
10
felt our responsibility was first to those
11
LPs to find out who they wanted to manage
12
the fund, and the LPs overwhelmingly voted
13
for the former management of Lehman to run
14
that fund, and that management team, the
15
private equity management team will proceed
16
on as the general partner replacing Lehman.
17
In terms of the real estate assets,
18
again, I put in there Canyon Ranch, Miami.
19
This is a situation where we actually went
20
on the offensive.
21
lender, but, in fact, we were an equity
22
holder.
23
cleaned up the mezz.
24
cleaned up the equity, cleaned up the mezz,
25
permitting us to really operate legally and
We weren't purely a
We went on the offensive.
We
We got rid of the --
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financially as owner, and then we took
3
actions to try and clean up and move the
4
280 unsold units.
5
positive.
6
moves and I think that the results to date
7
support that action.
8 9
That move has been very
The board has supported our
Fundamentally, real estate, we are shifting from being a portfolio manager who
10
is waiting for a better market to an asset
11
manager that is working the assets and we
12
will get to a better market, but we
13
recognize that as an asset manager we are
14
very much in competition with others who
15
are trying to take our value and put it
16
into their building or their piece of
17
property.
18
offensive.
19
months we have been very much more an asset
20
manager than a portfolio manager.
21
So we have gone on the I would say in the last three
On the derivative front, as you will
22
see, we have collected close to $6 billion,
23
implementing hedging strategies and various
24
other strategies of assignment which I
25
think are actually maybe making law or TSG Reporting - Worldwide (877) 702-9580
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precedent right now, so it's an interesting
3
time for us in the derivatives world.
4
On the international front, we have
5
the Lavender portfolio, which is a
6
portfolio of loans, real estate loans in
7
Japan.
8
mid teens kind of recovery.
9
proactive role along with the help of the
We went in with that looking at a We took a
10
receiver in Hong Kong and we have actually
11
presented a credit bid concept to the
12
Japanese, which was somewhat unique.
13
result of that credit bid concept was we
14
got the recovery in excess of mid 40s up
15
from the 14, 15 percent recovery range that
16
had been forecasted.
17
stalking horse in there ourselves, we were
18
able to get an honest bid out of the
19
marketplace.
20
The
So by putting a
We are in discussions on Bankhaus,
21
which is a major subsidiary and creditor of
22
ours, on trying to settle out of some of
23
the asset issues that we have with them.
24 25
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2
activities.
3
provide -- LBIE is the European, the U.K.
4
receiver.
5
we really have minimum transparency with
6
what is going on in those estates.
7
the fact that we are probably the largest
8
creditor, it's a little frustrating not
9
knowing what's happening in those estates,
The LBI and LBIE, they really
LBI is the SIPA receiver.
And
Given
10
not knowing officially what's going on in
11
those estates.
12
Our relationship with KPMG receiver
13
in Asia, we have been able to work together
14
on protocols and deal with problems, and as
15
a consequence liquidation results have been
16
really very strong.
17
International protocol, what this is
18
is trying to get receivers in various
19
countries to work together so we can get
20
out of this case before I die.
21
issues that we have are really you have got
22
rules in each country.
23
in that country will govern.
24
question about the sovereignty, but the
25
cooperation and information sharing, having
And the
Obviously the rules There is no
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2
a common objective of trying to do right by
3
the creditors, trying to get through these
4
matters in a fair way, trying to get
5
through these matters in a cooperative way
6
has been very important and that's what
7
Judge Peck has supported in this protocol,
8
and aside from the U.K. and Japan we have
9
received support from the administrators in
10 11
the other receiverships. Challenges.
Again, on the LBI front
12
it's not clear to us what's going on in
13
that estate, lack of transparency.
14
largest creditor we remain in the dark as
15
to the substantial amount of the ultimate
16
recovery or lack of recovery.
17
As the
On the LBIE front, we could use
18
improved cooperation.
19
conservatively-administered estate and that
20
has handicapped us.
21
It's a very
In terms of our financial
22
position -- again, there is a lot of
23
detail.
24
is any other way we could provide it,
25
though.
I apologize.
I don't think there
You see on the vertical axis is TSG Reporting - Worldwide (877) 702-9580
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all the various subsidiaries along with the
3
parent.
4
As we showed you in January, we are
5
treating this as the subsidiaries are
6
sacred, cash goes in there, cash stays in
7
there.
8
cash.
9
the cash receipts and disbursements related
There isn't a commingling of the There is a clear audit trail of all
10
to the various subsidiaries into the
11
holding company.
12
The cash, if you look across the
13
horizontal access, it is sort of an
14
activity report of where we are.
15
are today, our cash position today is
16
$12.2 billion as of 6-30.
17
various components of it in terms of the
18
debtor, non-debtor components, and all the
19
accompanying footnotes.
20
our website and it was filed as an 8-K this
21
morning.
22
Where we
You see the
Again, this is on
Bank platforms, the first one I'd
23
like to cover is the bank which is Utah.
24
This bank there has been significant
25
progress.
As you can see to the far right, TSG Reporting - Worldwide (877) 702-9580
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if you look down four lines down you see
3
RBC ratio, risk based capital.
4
trouble in December.
5
capital was down to 5.4 percent.
6
end of March the risk capital is 9.9.
7
FDIC wants you at 10 percent or better.
8
And so we have made some significant
9
headway to get there.
We ran into
Our risk based As of the The
We actually think
10
today we were in excess of 10 percent.
11
are in excess of 10 percent today.
12
believe that because of the way in which we
13
have had to mark these books, that this is
14
a very, very conservative marking that has
15
taken place in -- I shouldn't say very,
16
very.
17
(inaudible) would be very, very
18
conservative.
19
here of $572 million, we feel pretty
20
comfortable with and in fact, think it
21
could be as high as a billion dollars of
22
ultimate realization of value.
23
A very conservative.
We
We also
The next
The equity value you see
So this is an important asset for us
24
to preserve.
25
in government to close this and wrap this
Despite the efforts of some
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2
bank, we are doing our best to try and keep
3
this bank open so that as we wind this bank
4
down or find a buyer for this bank we can
5
realize the value of this equity.
6
Moving on to the Thrift, the other
7
institution we have other than the Utah
8
bank is called the Aurora Bank which also
9
consists of our Aurora servicing business.
10
The mortgage servicing business today
11
services $114 billion worth of mortgages.
12
It should be a profitable -- it should be a
13
business that under normal circumstances
14
without the service advances it should be
15
making the estate something on the order of
16
a hundred million dollars a year of EBITDA.
17
It's a nice business.
18
when we started the process on 9-30, the
19
risk based capital was 10.4.
20
down to 5.9 by 12-31.
21
back up to 10.3 percent.
22
because we were told that if we brought
23
that back up to 10 percent, the FDIC would
24
open the window so that we could start
25
issuing brokered CDs only to the level that
As you can see here,
It dropped
We have brought that We were hopeful,
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2
they existed at the time of the bankruptcy.
3
The reason we need to do that is we need to
4
match our liabilities with the asset.
5
liabilities are running off at a faster
6
pace than the assets as they are maturing.
7
If we can solve that matching problem,
8
again, this portfolio which is valued today
9
at $592 million worth of equity, we think
Our
10
is very, very conservatively priced.
11
think that the equity value here could be
12
in excess of a million dollars as well, so
13
we are, again, very interested in
14
preserving this value for the estate,
15
getting the CDs opened up and being able to
16
re-broker the CDs and being able to match
17
the asset run-off with the liability
18
run-off.
19
We
The bank book itself -- again, I
20
apologize for a busy schedule.
21
one axis, the vertical axis, is the various
22
owners of the bank loans.
23
axis consists of funded and unfunded and
24
whether it was pledged or not to JPMorgan.
25
The key is the fourth numerical column.
Down the
Across the top
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says Funded, Total.
3
Lehman banks we have just talked about, the
4
first line is the Utah bank, second line is
5
the Thrift, for a total of 2,249.
6
team is managing the next four columns plus
7
the CLOs down at the bottom; Pine, Spruce
8
and Verano, and involved in the LB Bankhaus
9
London oversight.
If you go down, the
The bank
So the responsibility of
10
the bank team is roughly about $7 billion
11
and I believe that's the value that they
12
believe this portfolio will collect out at.
13
As you see, the unfunded, we have a
14
significant unfunded problem in the far
15
right.
16
problem.
17
rock.
18
year this would go away, this would be
19
gone.
20
You see a $17 billion unfunded This continues to drop like a
I would expect by this time next
Moving on to principal investments
21
and private equity, down the vertical axis
22
you have got the various categories of
23
assets.
24
the post-petition activity.
25
we have 7,659 positions being managed by
Across the horizontal you have got Starting off
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2
this team.
3
16 billion.
4
sources and cash uses in the next two
5
columns, and looking at the portfolio,
6
Alvarez & Marsal along with management have
7
revalued the portfolio down and we have
8
taken the value of that portfolio down as
9
of 3-31 by 6 billion 347.
Pre-petition that was valued at There had been various cash
So we believe
10
that the carrying value of that as of
11
3-31-09 is $9.2 billion.
12
The current unfunded commitments,
13
2.7, and again, much of this relates to the
14
private equity group and consists of the
15
areas where we are the GP.
16
coming down as we -- again, as we dispose
17
of our GP interest in the real estate
18
portfolio, that number will also come down.
19
This will be
Moving on to the next asset
20
category, real estate assets, down the
21
vertical axis you just see the commercial
22
North America, Europe and Asia and
23
residential portfolios.
24
small residential portfolio.
25
top axis, again, the activity.
We have a very Across the
TSG Reporting - Worldwide (877) 702-9580
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2
started this on the 12th of -- when we
3
started with the financials that were
4
available on the 12th of September, there
5
was $22.9 billion on the books.
6
been some additional asset investments and
7
some receipts and disbursements.
8
market change we took that, again, this is
9
Alvarez & Marsal and the management of the
There have
With a
10
company, we revalued that portfolio.
11
thought that that portfolio was worth
12
$5.4 billion less than had been indicated
13
at 9-12.
14
deterioration of market conditions and
15
maybe just aggressive marks.
16
We
That would be a combination of a
The carrying value on the real
17
estate portfolio as of the end of December,
18
we will have -- like I said, this number
19
will be updated for you in mid August, but
20
it's $16 billion.
21
the scrubbing down that A&M and Lehman has
22
put this portfolio through, we have come up
23
with a value that we believe is a
24
$16 billion value.
25
is subject to changes in the market and
That is the value after
Of course, that value
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341 Creditors Meeting obviously timing. Moving on to the next asset, the
4
category derivatives.
5
last meeting -- this was the only part of
6
the engagement which has scared me.
7
derivative portfolio when we started the
8
process (inaudible) 1.2 million derivative
9
rate representing, as I understand,
Derivatives at the
The
10
(inaudible) telling people $6 trillion of
11
notional aggregate.
12
34, 32 -- 39.
13
notional value.
14
approximately 300 FTEs, full-time
15
equivalents, working this problem, trying
16
to get through the various termination
17
claim calculations and trying to value the
18
portfolio, and I will tell you that I am
19
very pleased where we stand.
I mean, this
20
process is picking up speed.
The last 90
21
to 120 days we have been making terrific
22
headway and we appreciate the support of
23
the Unsecured Creditors Committee as well
24
as the court.
25
supportive in trying to sort this out.
I guess it's closer to
Excuse me.
39 trillion of
And today we have
They have been very
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Moving on more specifically the cash
3
collections, you see we were tracking this
4
on a periodic basis as we met with the
5
various committees.
6
$5.8 billion in collections from the
7
derivative portfolio.
8
the team today they believe there is
9
another 5 to 5 and a half billion dollars
We are up to
I believe if you ask
10
in potential collections from this
11
portfolio and we are -- we would see this
12
trend continuing into the balance of this
13
year.
14
Now, the specifics, these are some
15
assumptions.
16
through them.
17
you can read at your leisure.
18
I don't think we need to go They are assumptions which
In terms of detail, I mean, we
19
understand that there is a real need by
20
some of the creditors to understand the
21
value of their claims.
22
importantly, to create a liquid market for
23
their claims, and that liquid market comes
24
about when people have information.
25
are going to attempt to be as responsive as
Maybe, more
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we can without sharing anything from an
3
insider perspective, inadvertently sharing
4
it, but we recognize your needs, those of
5
you who are derivative holders.
6
going to try and break out information for
7
you in the next 30 days which will lay out
8
the derivatives by subsidiary, where we
9
stand with those and what value we placed
We are
10
on those derivatives after applying
11
appropriate reserves to them, which will
12
give you at least a feel for where we are
13
subsidiary by subsidiary on a derivatives
14
book.
15
From a global standpoint, which is
16
what you are going to see now, you are
17
going to have to be patient for another 30
18
days, but by mid August, the latest, we
19
will have that information for you.
20
On the receivables side we have
21
27.1 billion and that would consist of
22
open, terminated and final settled trades.
23
You see the number of trades we are talking
24
about here on the receivables side is
25
788,000 trades.
On the payable side we
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have 16 billion in the aggregate, which is
3
owed others, and that represents 390,000
4
trades.
5
In terms of the composition of that,
6
again, the MOR we lay out.
7
receivables, $27 billion, is broken down by
8
subsidiary.
9
broken down by subsidiary.
The
The payables of 16 billion is And then we
10
attempt to break down the number of trades
11
and the activity in each one and both the
12
receivables and payables, and we will
13
expand upon that.
14
The far right-hand grouping, which
15
is the collections by subsidiary, which
16
will give you -- again, if you are trying
17
to do estimates in valuation, this
18
hopefully will -- as we fill in some of the
19
blanks, this will hopefully benefit that
20
activity, although it isn't our primary
21
responsibility.
22
extent that we can help make a liquid
23
market for this, it helps the overall
24
process.
25
We understand that to the
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2
book is, again, the active disposition of
3
open contracts.
4
open contracts have been resolved.
5
is an aggressive assignment process going.
6
It's been slow going and the hedging
7
process -- again, we are a bankrupt company
8
involved in trying to unwind derivatives
9
and now we are in the hedging game.
All but 1 percent of the There
This
10
is probably, again, one of the firsts in
11
bankruptcy.
12
hedged about a half a billion dollars.
13
hedging is being done in order to lock up
14
value so that the estate does not have to
15
worry about what is the value of that
16
derivative.
17
But the team to date has The
Legal strategy, again, read at your
18
leisure.
19
right now with a large bank which we
20
believe owes us in excess of somewhere
21
between half a billion to a billion dollars
22
and we are aggressively pursuing that
23
lawsuit and in the coming weeks you will
24
hear more about that.
25
We are in the midst of a case
On the forensic side, this warrants TSG Reporting - Worldwide (877) 702-9580
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a little closer inspection on the forensic
3
side.
4
the actions of Lehman's clearing banks,
5
JPMorgan, Bank of America and Citibank, in
6
the time period leading up to the filing.
7
We have been reconstructing the actions of
8
the DTC and the Federal Reserve during the
9
week of the filing after LBHI and before
We had been trying to reconstruct
10
the filing of LBI.
11
the disposition of Lehman's collateral by
12
the clearing banks to assess whether or not
13
it was done in a reasonable fashion, a
14
commercially reasonable fashion.
15
been reviewing the collateral given to
16
Barclay's at the time of the LBI sale to
17
make sure that what was exchanged was to
18
the benefit of the borrower.
19
We have been reviewing
We have
Last slide, in order to help you
20
understand the complexity of this case, I
21
know -- a question I get asked a lot is
22
what's the recovery going to be.
23
answer to that is there is no simple
24
answer.
25
that that question has to be first asked of
Well, the
I mean, first of all, recognize
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each subsidiary, that each subsidiary has
3
assets and has liabilities and the
4
recoveries and percentage recovery of one
5
subsidiary might be 60 percent and the
6
recovery of another subsidiary might be
7
30 percent.
8
treating -- while we talk on a consolidated
9
basis in terms of your recovery, you should
Our assumption is that we are
10
be talking about an individual subsidiary
11
by subsidiary and then ultimately Holdings
12
basis.
13
from a Holdings perspective what some of
14
the challenges are.
15
simplistically a recovery is a function of
16
proceeds and claims.
17
of cash, illiquid assets, lawsuit net
18
recoveries, intercompany receivables, less
19
any priority claims we have.
20
claims we just paid off is the (inaudible)
21
Guaranty Corporation where we paid them
22
approximately $120 million and that's a
23
priority that's behind us, but those type
24
of priority claims are out there and may be
25
a reduction of the proceeds.
This was an attempt to show you
In terms of -- again,
The proceeds consists
Priority
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2
As we look at those proceeds, as we
3
look at the components of proceeds, we say,
4
well, cash is obviously known today.
We
5
are in excess of 12 billion in cash.
On
6
the illiquid assets side, if you go back
7
and you add up all the stuff from this, you
8
might get a range of 35 to $40 billion on
9
the illiquid assets as of today.
That
10
won't be the hard part, because I think by
11
the time August rolls around, August of
12
this year rolls around, you will have a
13
pretty good handle on what the illiquid
14
asset portfolio looks like, subject to
15
changes in market condition what it looks
16
like.
17
handle on is what is the lawsuit and
18
recoveries going to be, if anything.
19
you won't have is what the intercompany
20
receivable has.
21
is that LBHI, Holdings, was the bank to all
22
the various subsidiaries and as a banker we
23
lent in excess of $50 billion to those
24
subsidiaries and some of those subsidiaries
25
have given us a good indication of what the
What you are not going to have a
What
Understand what that means
TSG Reporting - Worldwide (877) 702-9580
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341 Creditors Meeting
2
recoveries might be and some have not, as
3
we discussed earlier in the presentation,
4
so we don't know to what extent -- how much
5
of that $50 billion is going to be
6
recovered and, like I said, while we
7
have -- we haven't identified any priority
8
claims to date that we haven't paid off,
9
but I'm sure there will be some.
10
On the claims side we will have --
11
again, shortly after the Bar date we will
12
have a pretty good handle on what the
13
scheduled claims were, what the stated
14
claims were when we went into bankruptcy.
15
That's really not the problem.
16
is the next category of claims, derivative
17
claims from the terminations.
18
of these claims there is a significant
19
amount of settlement process that's going
20
to have to take place.
21
to be finished any time soon.
22
going to take a while.
23
The problem
In the case
This is not going This is
The third component is subsidiary
24
guarantees.
25
the subsidiaries is they have to figure
What has to happen at each of
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341 Creditors Meeting
2
out, okay, if Holdings guaranteed the
3
subsidiary, the subsidiary had a hundred
4
dollars that was guaranteed and the
5
subsidiary assets collect out $60, then
6
there would be a $40 claim that was brought
7
to the estate and, thus, what's clear is
8
that it's dependent upon the speed of the
9
other receivers in terms of getting the
10 11
calculation.
Somewhat out of our control.
And then last but not least, the
12
intercompany payables.
13
of receivables, net receivables.
14
have a much larger receivable number
15
because we have a payable number which is
16
net against the receivable number, so we
17
don't have -- again, that is dependent not
18
on our books, but on what the receivers are
19
going to agree to, which is why the
20
international protocol is important if you
21
want to (inaudible) through this thing and
22
get it any time soon.
We have $50 billion We also
23
So when people ask me -- one of the
24
frustrations is I really believe in terms
25
of valuing a claim today there is a huge TSG Reporting - Worldwide (877) 702-9580
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2
unknown, but the unknown is not in the
3
assets which we control here in the
4
Holdings estate.
5
the determination of the derivatives,
6
litigation of the lawsuits, and figuring
7
out what the due to/due from is on the
8
intercompany accounts and what the
9
guarantees that are going to be called
The unknown is more in
10
upon.
11
before this becomes anything other than a
12
bowl of (inaudible).
13
who are (inaudible) I can honestly say I
14
don't have a clue, I don't have a clue what
15
the right number will be.
16
what the numerator is going to look like,
17
the numerator being the proceeds in terms
18
of cash and liquid assets, I have a feel
19
for the lawsuits, you know, a very general
20
feel for the lawsuits, but beyond that we
21
are going to be slugging through it in the
22
same timetable you will be slugging through
23
it.
24 25
So it's going to be a long time
So for those people
I do have a clue
So with that, that's the completion of the presentation.
Like I said, this is
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2
on the website.
3
8-K.
It is also filed in an
4
It's open for questions.
5
Andy, do you want to --
6
MR. VELEZ-RIVERA:
Just a word of
7
admonition.
This is not is a public
8
deposition.
If you have questions relating
9
to a piece of litigation or a specific
10
claim or if you just go too long, I will
11
cut you off.
12
the microphone which are up and down the
13
center aisle, state your name, who you
14
represent, we will get the questions under
15
way.
So if folks would step up to
16
Sir in the back.
17
SPEAKER:
Thank you very much.
My
18
name is (inaudible) Kamenski (phonetic)
19
from Paulson & Company and I have a couple
20
of questions.
21
guess it's slide 14 and slide 16 on the
22
real estate book, can you comment on the
23
loan book in terms of that last category?
24
I think you mentioned that those assets on
25
the loan book are pledged to JPMorgan in
In terms of the loan book, I
TSG Reporting - Worldwide (877) 702-9580
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2
terms of the nature of that pledge and what
3
those assets are going to be, and similarly
4
for slide 16 on the 14.8 billion of real
5
estate assets controlled by other
6
receivers, if you could just comment about
7
the nature of those assets and the nature
8
of your claims against those assets, and
9
then it also refers to $4.8 billion
10
repurchase agreement that was terminated,
11
again, if you can just comment about what
12
the nature of that asset was.
13 14 15
MR. MARSAL:
Mr. Kamenski, that's a
mouthful. SPEAKER:
And I have another
16
question too, but I think if you look at
17
slide 14 first.
18
MR. MARSAL:
Okay.
Slide 14, first
19
question you raised was on the pledged
20
assets?
21
SPEAKER:
22
MR. MARSAL:
That's right. The pledged assets
23
which would be in the sixth column.
24
are asking about the 4.352 million of
25
pledged assets? TSG Reporting - Worldwide (877) 702-9580
You
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341 Creditors Meeting
2
SPEAKER:
3
MR. MARSAL:
That's correct. And the question is who
4
are they pledged to?
5
SPEAKER:
6 7 8 9
That would be the first
question. MR. MARSAL:
They are pledged to
JPMorgan. SPEAKER:
And is that part of an
10
existing financing structure or were those
11
assets -- how did the loan book get pledged
12
to JPMorgan?
13 14 15
MR. MARSAL:
How was it pledged?
John, would you like to answer that? MR. SUCKOW:
There were a number of
16
structures that were pledged to JPMorgan
17
prior to the filing of bankruptcy, so this
18
serves as collateral to a number of the
19
different agreements that existed with
20
JPMorgan.
21 22 23 24 25
SPEAKER:
Do you know offhand if
that included the rates restructure? MR. SUCKOW:
That would include the
rates restructure. SPEAKER:
Thank you.
And then I
TSG Reporting - Worldwide (877) 702-9580
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2
guess if we go to slide 16.
3
14.8 million of real estate assets
4
controlled by the receivers --
5
MR. SUCKOW:
The
I think the
6
14.8 billion and 4.8 billion were brought
7
up, when you were talking about that
8
forward of this, was an attempt to
9
reconcile that bank book as presented back
10
in January.
11
number back then was approximately 42
12
billion.
13
identified assets around the world that
14
were subject to other receivers.
15
example, Bankhaus was one of those.
16
not Bankhaus?
You may recall I think the
At that point 14.8 specifically
17
(Inaudible.)
18
MR. SUCKOW:
For No,
I don't know if you
19
heard that back there, but it's basically
20
Europe and Asia under control of LBIE, PWC
21
or Asia and KPMG, and then the 4.8 billion
22
is a repo that essentially terminated post
23
filing, so the purpose of that is to
24
reconcile the January presentation.
25
SPEAKER:
And of that 14.8, those
TSG Reporting - Worldwide (877) 702-9580
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341 Creditors Meeting
2
underlying assets themselves, are they in a
3
financing structure similar to the loan
4
book or are the bottom line assets
5
unencumbered and the nature of the claims
6
through claims creditors against its
7
assets?
8 9
MR. SUCKOW: in those assets.
10 11
We are just a creditor
SPEAKER:
I have one further
question.
12
MR. VELEZ-RIVERA:
13
SPEAKER:
14
No.
Hi, Mark Heimowitz
(phonetic) from Citi.
15
Mr. Marsal, you mentioned that you
16
are looking at all of the recoveries on an
17
individual subsidiary basis and looking at
18
subsidiary guarantee claims.
19
experience now in the books and records of
20
the company, is there any entanglement
21
issue or are the books and records clean
22
and unencumbered between subsidiaries and
23
Oldco?
24 25
MR. EHRMANN:
In your
I think it's fair to
say we are still reconciling (inaudible). TSG Reporting - Worldwide (877) 702-9580
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2
SPEAKER:
And with respect to
3
transactions with the outside world, has
4
there been any work done on whether or not
5
if the creditors of the subsidiaries relied
6
on the individual credit quality of the
7
subsidiaries as opposed to the credit --
8 9
MR. EHRMANN:
We are not going to
comment on what other people rely on.
10
SPEAKER:
I guess the final
11
question, are you exploring the concept of
12
substantial consolidation of the --
13 14
MR. WAISMAN:
We are exploring all
legal options with respect to the estates.
15
MR. MARSAL:
Our approach is not to
16
assume there is going to be any substantive
17
consolidation.
18
decision that will be made later by the
19
court.
20
subsidiary, to respect the integrity of the
21
legal entity structure.
22
That will obviously be a
Our approach is to keep each
SPEAKER:
I am Fayel Romano
23
(phonetic) of SGE from Italy and I
24
represent Antonio (phonetic) creditors.
25
The question is related to guarantees. TSG Reporting - Worldwide (877) 702-9580
In
Page 45 1
341 Creditors Meeting
2
the case of those issued by Lehman
3
Treasury, the Netherlands company, since
4
there is not the Bar date and the recovery,
5
of course, yet as far as the entity is
6
concerned, it appears logic and appropriate
7
to file claims against the mother company,
8
LBHI.
9
reasonable logic (inaudible) to file for
Okay.
Would you confirm that it's a
10
guaranty for 100 percent value?
11
the first question.
12
MR. WAISMAN:
This is
We are not in a
13
position to provide advice to third
14
parties.
15
claims against the debtors, they should
16
consult the bargaining order and file
17
claims consistent with the bargaining
18
order.
19
If people believe that they have
MR. MARSAL:
It's not our intent.
20
Our intent -- we view that we are working
21
for the creditors.
22
creditor, it's not our intent to use the
23
Bar date as a shield to deny you any
24
legitimate claim.
25
if there is confusion and we will do
If you are a legitimate
So we will work with you
TSG Reporting - Worldwide (877) 702-9580
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341 Creditors Meeting
2
whatever it takes to get all legitimate
3
claims captured in this process.
4
you as a beneficiary, if a guaranty was
5
made and you have filed a legitimate claim,
6
so one of the questions that have come up,
7
are we using the Bar date as a scheme to
8
avoid claims, absolutely not.
9
intention of doing that.
I mean,
We have no
What we do want
10
to do, though, is we need to move the
11
process forward.
12
distribute that cash, and it keeps growing,
13
to the various creditors, and to do that we
14
have got to get a handle on these -- a
15
reasonable handle on the claims
16
(inaudible).
17
SPEAKER:
We need to be able to
You are right.
The point
18
is that, of course, in the case you have
19
how much you get from the guaranty company,
20
let's say treasury, since you have the
21
number, you may file the difference.
22
you don't have that number, possibly within
23
the Bar date you should file for 100
24
percent.
25
logic.
If
This is I understand should be
TSG Reporting - Worldwide (877) 702-9580
Page 47 1 2
341 Creditors Meeting MR. EHRMANN:
We are actually
3
working with the Dutch administrative in
4
order to coordinate the procedure.
5
SPEAKER:
Good morning.
Vladimir
6
(inaudible).
7
One relates to the two sets of schedules of
8
assets and liabilities that were filed -- I
9
believe the first set of schedules was
I just have two questions.
10
filed March and the second set -- first
11
schedule is filed March 12th, the second
12
schedule was filed June 15th, and my
13
question relates to very significant
14
differences between those two schedules.
15
Could you just give us an idea of, first of
16
all, what was the need to file an amended
17
set of schedules, first of all, and
18
secondarily, you know, why were there
19
significant discrepancies, differences
20
between intercompany payables and
21
receivables between the March schedule and
22
June schedule?
23
MR. FOX:
Vladimir, just tell me
24
which schedules are you looking at, for
25
which debtors? TSG Reporting - Worldwide (877) 702-9580
Page 48 1 2
341 Creditors Meeting SPEAKER:
I think some of the
3
biggest differences are down with the LBSF
4
and LCPI.
5
MR. FOX:
The biggest difference is
6
the LBSF and LCPI schedules that were filed
7
in the first instance were based upon
8
September 14th closing information and in
9
the second instance were based upon the
10
beginning of October closing information,
11
which was on or about the petition date of
12
those two entities.
13
difference that took place.
14
certain offsets that are described in the
15
notes to each of those.
16
you can discuss this with us off line and
17
we can go through a detailed reconciliation
18
with you.
19
whole group, but those are globally
20
essentially the differences there.
21
So you have a timing You also have
If you would like,
I don't want to hold up the
SPEAKER:
And just essentially did
22
you net intercompany secured against --
23
secured receivables against secured
24
payables and unsecured receivables against
25
unsecured payables? TSG Reporting - Worldwide (877) 702-9580
Page 49 1 2
341 Creditors Meeting MR. FOX:
We did not net the
3
receivables against payables, per se.
4
there was a position that was repoed out to
5
either LBI or LBIE, we did net those
6
positions, but we didn't net any unsecured
7
position.
8
SPEAKER:
Right.
Understood.
If
And
9
just regarding intercompany receivables
10
collectively, I believe the most recent
11
schedules for LB does show approximately
12
150 billion of intercompanies and I believe
13
Mr. Marsal mentioned earlier in the
14
presentation there is about a $50 billion
15
number.
16
between the 150 and the 50 billion
17
intercompany with respect to LBHI?
18 19 20 21 22
Can you describe the difference
MR. MARSAL:
I think he is going to
look to me now. MR. FOX:
I think those are two
different definitions. MR. MARSAL:
The 50 billion that I
23
used was --- in the presentation that was
24
being made in July in London to the various
25
receivers, that's a net number. TSG Reporting - Worldwide (877) 702-9580
I think it
Page 50 1
341 Creditors Meeting
2
may be a net number and you may be
3
referencing a gross number.
4
MR. EHRMANN:
5
SPEAKER:
That's right.
Understand.
And then the
6
LBHI initial September 14th -- as of
7
September 14th, '08 MOR, there are some
8
very large significant securities assets,
9
about 5.9 million in government securities,
10
10.7 million in mortgage-related
11
securities, 5.3 billion in corporate
12
securities.
13
proceeds, cash proceeds, are they still
14
property of LBHI or do they get somehow
15
netted out or essentially foreclosed on as
16
counter-parties, you know, get called in in
17
repo lines?
18
LBHI?
19
Are those securities or
Are those still assets of
MR. FOX:
Many of those positions
20
were repoed, so again, either LBI or LBIE,
21
they were netted against the intercompany
22
amounts.
23
claim against LBI for those positions and
24
will be making a claim to LBIE as well.
25
However, the estate did make a
SPEAKER:
Understood.
Last
TSG Reporting - Worldwide (877) 702-9580
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341 Creditors Meeting
2
question.
3
of debtors collectively I believe you
4
mentioned earlier in the presentation that
5
you are valuing the asset at 27 billion and
6
you mentioned early this morning that about
7
6 billion has been collected and you are
8
anticipating further collections of about 5
9
billion, that's 11.
Related to the derivative assets
So the question is
10
what's the difference between the 27
11
accounting value and the 11 that you have
12
and anticipate to collect this year
13
(inaudible)?
14
MR. MARSAL:
The problem is I
15
probably misspoke.
16
gave you something that was an internal
17
estimate of what we thought was a
18
reasonable target, but I think from an
19
accounting standpoint what Bill Fox will be
20
establishing is reserves against that
21
receivable as we go through rivet by rivet
22
of what's the likelihood we are going to
23
collect on that derivative based on the
24
circumstances surrounding it, and when we
25
have done that as a team, the team has
I am giving you -- I
TSG Reporting - Worldwide (877) 702-9580
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2
estimated roughly an overall collection
3
about $11 billion, which is where the
4
number comes from.
5
to date.
6
5.2 billion.
7
nature, so I said $6 billion.
8 9 10
13
11 billion would mean another My team is conservative by
SPEAKER:
So, in other words, you
are thinking about a 15 billion reserve against a 26 billion asset?
11 12
We have collected 5.8
MR. MARSAL:
Yes, that would be
the -SPEAKER:
What about the derivative
14
liability, is that also estimated to be
15
sort of in the 20 billions?
16
MR. MARSAL:
Not prepared to
17
estimate that.
18
get to the Bar date.
19
date when we get everything in, then I
20
think we can begin to intelligently answer
21
that question.
22
that today.
It's too early.
We need to
Then after the Bar
We only have fragments of
23
SPEAKER:
Thank you very much.
24
SPEAKER:
Paul (inaudible) from
25
(inaudible).
I have a follow-up on
TSG Reporting - Worldwide (877) 702-9580
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2
Mr. Kamenski's question.
3
explain on the 14.8 billion of real estate
4
held by other administrators how much --
5
have you been able to look into those
6
intercompanies and figure out how many
7
other third-party creditors there are?
8
Were those primarily financed by
9
(inaudible)?
10 11 12 13 14 15 16
MR. SUCKOW:
Can you just
I don't think we know
the answer to that at this point. SPEAKER:
And what entities do they
sit in? MR. SUCKOW:
I don't think we have
an answer to that. SPEAKER:
The 4.8 billion, can you
17
just explain that a little bit better, what
18
exactly that is?
19
MR. FITTS:
These were for five
20
different repos that were secured by
21
mortgage collateral that were actually
22
folded (inaudible).
23
SPEAKER:
And how did it make it
24
into the presentation?
25
there for a reason.
Obviously it's
TSG Reporting - Worldwide (877) 702-9580
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341 Creditors Meeting
2
MR. FITTS:
As John said, we were
3
trying to reconcile back to the January
4
presentation.
5 6
SPEAKER:
of the estate or --
7 8
So would that be an asset
MR. FITTS:
I don't think it's an
asset of the estate.
9
MR. MARSAL:
I think we probably
10
should reconcile it, because it sounds like
11
it is very confusing for people, but,
12
again, it was done at a point where we were
13
earlier on in the process with not as good
14
a fact base or understanding as we have
15
today.
16
MR. FITTS:
In the January
17
presentation it was shown as that.
18
number was 22 here and 42 there.
19
trying to make sure people understood.
20
SPEAKER:
The We were
And then on the cash
21
flows, obviously it's been impressive.
22
Again, back of the envelope trying to
23
figure out how much is coming into the
24
estate, there seems to be monthly inflows
25
of commercial paper and holdings. TSG Reporting - Worldwide (877) 702-9580
I am
Page 55 1
341 Creditors Meeting
2
sure you have modelled out over the next
3
year, two years, what the cash flows might
4
be.
5
Can you discuss that a little bit. MR. MARSAL:
Well, we are not
6
prepared to share that model with you, but
7
you are absolutely right, we have each of
8
the asset teams now trying to forecast
9
their cash requirements and cash fall-off
10
from each of the asset teams and that is --
11
it's a planning process which we should be
12
in a lot better shape by the middle of the
13
fall to be able to share with people.
14
as of today what we know we have, as we
15
look at this presentation, we have 12
16
billion in consolidated cash.
17
up all the pieces that we talked about, the
18
illiquid assets, you come out with a number
19
of 35 to $40 billion of illiquid assets and
20
value that the teams think is there today,
21
subject to changing market conditions,
22
clearly, and subject to time, but so you
23
add those two numbers and you have got two
24
pieces of -- components that I talked about
25
in the last schedule, but the other
But
If you add
TSG Reporting - Worldwide (877) 702-9580
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341 Creditors Meeting
2
components we don't have, and what I would
3
say to you is by the middle of the fall we
4
should have much greater clarity on the
5
question that you just asked as well as
6
what the values are of the illiquid asset
7
portfolios.
8
SPEAKER:
9
MR. VELEZ-RIVERA:
10
SPEAKER:
Quick follow-up. No.
Next.
(Inaudible) from Elliot
11
(inaudible).
12
derivative receivable, the collections
13
running at 800 million to a billion a month
14
and sort of projecting out a $12 billion
15
cash balance by year end, and then what
16
happens then?
17
you know, what's behind the $16 billion
18
shortfall?
19
you expect to end up with at the end of the
20
year.
21
So this notion of the
Collections just stop or,
The 27 less the 11 or 12 that
MR. MARSAL:
What I would say is we
22
are trying to do a derivative by
23
derivative, receivable derivative by
24
derivative analysis, and the team has come
25
back and said we think a realistic target TSG Reporting - Worldwide (877) 702-9580
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2
given all the facts and circumstances we
3
have with some of these things is
4
approximately 11 to $12 billion ultimate
5
collection on the derivative.
6
to shoot to do better than that, Mr. Ryan
7
(phonetic), as you well know, but we are --
8
as to what would happen with the rest of
9
the book, it would mean there would be a
We are going
10
write-off because there would be a
11
legitimate termination taking place there
12
on the part of that counterparty.
13
the extent it's not legitimate, we will
14
fight it in court, we will pursue it, but
15
the conclusion is that when you establish
16
reserves, it's your team's best guess on
17
what the collectability is of that asset as
18
opposed to what's on the books today.
19
MR. EHRMANN:
And to
The value comes from
20
three primary sources and some of that is
21
in the litigation strategy chart, Ryan.
22
Essentially as the estate went into
23
bankruptcy, the SPVs, who were our
24
counterparties, basically submitted the
25
estate to subordination and we are actively TSG Reporting - Worldwide (877) 702-9580
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2
fighting that in court and hence we are
3
pretty reluctant to putting a number on
4
that given that we are in the process of
5
trying to maximize recoveries there.
6
The second piece that has actually
7
impaired most of the value is a lot of
8
counterparties are arguing multiple sorts
9
of setup rights, and as you know we are
10
actively fighting that in court and
11
obviously hoping that we will maximize our
12
recovery by winning those cases.
13
And then the third piece is that
14
when we went into bankruptcy the street
15
basically got a big advantage over us
16
because it had an option to terminate us at
17
favorable validation terminations, and so
18
we are in the process of challenging those
19
and that's why, as I pointed, out at high
20
level we have estimated that the shortfall
21
is going to be pretty substantive.
22
Obviously as we win the cases in court, we
23
can hope that will enhance the recovery.
24 25
SPEAKER:
So to be clear, based on
everything that's done publicly and this TSG Reporting - Worldwide (877) 702-9580
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2
litigation strategy, you say that the swaps
3
facing the SPVs are worthless, what it
4
sounds like, if I am interpreting this
5
correctly, from an accounting perspective
6
you are fully reserved against those
7
positions.
8
MR. EHRMANN:
9
SPEAKER:
10 11
That's correct.
And then the follow-up
question -MR. MARSAL:
What I am saying is
12
that what we are going to do is they are
13
going to shoot me if I haven't given you an
14
estimate on the value of collection.
15
That's the best thinking of the team today.
16
As we get smarter -- and we are getting
17
smarter.
18
derivatives.
19
are going to have derivatives down cold.
20
Trust me.
21
smarter and we believe that will help us on
22
the receivable collection, so we should
23
improve that number, and it should result
24
in a reduction of the claims on the payable
25
side, but I would say that there is
We are learning about By the end of this process we
And we are getting smarter and
TSG Reporting - Worldwide (877) 702-9580
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2
probably a lot more upside to that estimate
3
than downside.
4
mid August is a different number, so don't
5
get too carried away.
6
is a number which is higher or lower than
7
that number based on more input, but in
8
August when we come up with a number we are
9
going to come up with a number that's going
10
to say we believe that this is a legitimate
11
derivative value that -- on the receivables
12
that we are going to ultimately collect
13
out, just as we have done in real estate,
14
proprietary assets and bank loans.
15
SPEAKER:
And what you might see in
What you might see
Did I hear someone here
16
characterize that as a short-term target?
17
Maybe not.
18
So clearly the derivatives book even
19
between the 12th and early October
20
experienced quite a bit of volatility.
21
see that in the balance sheets and a lot of
22
the receivables remain open in October into
23
the first quarter.
24
very precision here, because I don't think
25
I will get it, but directionally you talk
We
I guess I won't ask
TSG Reporting - Worldwide (877) 702-9580
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341 Creditors Meeting
2
about the movement in your derivative
3
receivable on a mark-to-market basis
4
setting aside recoverability considerations
5
just generally post filing, giving so much
6
for the value remaining in open contracts
7
for an extended period.
8 9
MR. EHRMANN:
I think directionally
generally the portfolio moved in the
10
estate's favor (inaudible) September to
11
date as a result of a reduction in interest
12
rates and in the credit (inaudible).
13
obviously already (inaudible) locked into
14
those values (inaudible).
15
terminated trades locked into the value.
16
On the open trades we are actively pursuing
17
hedging strategies and assignment
18
strategies, and as Bryan pointed out, that
19
trade population is now point 5 percent of
20
the entire population, so we realize that
21
we have ways to go, but I think we have
22
secured (inaudible) crystallized --
23
(inaudible) receivable (inaudible).
24 25
THE WITNESS:
We
All the
Point 5 percent of the
trades by number or value? TSG Reporting - Worldwide (877) 702-9580
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2
MR. EHRMANN:
3
SPEAKER:
Thank you.
4
SPEAKER:
(Inaudible) from
By number.
5
(inaudible) Capital Management.
6
quick question I guess for clarifying on
7
the intercompany receivables and payables.
8
In some of your working assumptions with
9
respect to mutuality and set-off, can you
10
clarify whether it's just pure accounting
11
and general ledger sort of procedures with
12
respect to the varying line items, no
13
receivable, derivative receivable, repo,
14
reverse repo or an intercompany
15
receivable/payable, if you are treating all
16
those in an aggregate as you look to set
17
off between entity 1 and entity 1A
18
depending on which side of the balance
19
sheet, or are you treating those, you know,
20
in some sort of priority waterfall
21
depending upon what type of intercompany
22
sort of line item exists?
23
MR. FOX:
Just a
The general ledger
24
information that goes into the financial
25
statements that you saw, whether it be TSG Reporting - Worldwide (877) 702-9580
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2
intercompany or (inaudible) positions,
3
there was just a general accounting
4
consistent with the way the company
5
reported it in the past as far as which was
6
listed first, which was listed second,
7
et cetera.
8
that was looked at vis-a-vis the bankruptcy
9
proceeding and realization of the assets
There is no particular priority
10
consistent with past practices of the
11
company.
12
SPEAKER:
But just to clarify, so in
13
aggregate LBHI was a net creditor in
14
another debtor estate.
15
of whether $10 of the $20 receivable was
16
classified as a repo as opposed to just a
17
traditional intercompany receivable, or is
18
that repo at the estate which (inaudible)
19
creditor (inaudible) and considered a
20
secured claim?
21
MR. FOX:
It was irrespective
In the September 14th
22
financial statement all the amounts were
23
shown on a gross basis, whether it was repo
24
or it was just a cash advance with respect
25
to intercompany balances.
When we updated
TSG Reporting - Worldwide (877) 702-9580
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341 Creditors Meeting
2
the October 3rd or October 5th MOR
3
statements for companies like LBSF, LCPI,
4
et cetera, if they had repo positions on an
5
intercompany basis, as I mentioned before,
6
we did net those.
7
those positions against LBI if that's where
8
the repo was and we are also claiming them
9
against LBIE.
However, we did claim
10
SPEAKER:
Thank you.
11
SPEAKER:
(Inaudible) from Davis &
12
Kemper.
13
27 million of assets.
14
are related to SPEs would you say, roughly,
15
and subject to subordination?
16 17 18
Quick question in regards to the
MR. MARSAL: question again? SPEAKER:
How much of those
I'm sorry, ask the I didn't hear that.
Of the 27 billion of
19
derivative assets or receivables, how many
20
are related to SPEs?
21
MR. EHRMANN:
22
SPEAKER:
23
MR. VELEZ-RIVERA:
24
SPEAKER:
25
(inaudible).
Close to 40 percent.
Okay.
Thank you. Next.
Nat (inaudible) from Bryan, you mentioned earlier
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2
taking more of an active role with respect
3
to the real estate portfolio.
4
understanding the cash from the estate is
5
being used to support that real estate
6
portfolio going forward.
7
cash has been used to date, how much cash
8
may be used going forward, who makes the
9
decisions as to how the real estate
It's my
I guess how much
10
business should be, will be, can be run
11
going forward?
12
MR. MARSAL:
Okay.
Let me see if we
13
can go back to the schedule which will help
14
us answer that.
15
schedule across the top you have got Lehman
16
Brothers Holdings, start of the process
17
there was 1.148 in cash.
18
in cash.
19
which shows what makes -- you see the
20
2938.7 at the very top there by Holdings,
21
first line?
22
2938.7 and keep it.
23
page 11.
24
change in cash during that period, and if
25
we go down, we look down about midway, you
Okay.
If you look at this
Today we have 2.9
Then we have the next schedule
2938.7.
Let's go to that Next page, 2938.7,
And if we go -- this is the
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341 Creditors Meeting
2
have got real estate capital calls, you
3
have -- do you follow me?
4
capital calls, 328.2.
5
components are Fortress, Prologis, other
6
commercial, and residential real estate,
7
17.3.
8
would be captured above and I am trying to
9
see where in the footnotes they have any
Real estate
The largest
In terms of any inflows, inflows
10
inflows.
11
real estate inflows, second line it says
12
"receipts from subsidiaries," 736.7.
13
line, real estate was the source of cash at
14
$411 million.
15
and you have disbursements of 328.
16
about that for a tight answer?
Jeff, help me if you can.
The
First
So you got receipts of 411
17
SPEAKER:
18
MR. MARSAL:
How
Pretty good. Who is making the
19
decision?
20
follows.
21
have the bankruptcy court -- four.
22
Trustee, bankruptcy court, at least in
23
accordance with certain areas, but
24
bankruptcy court, the Unsecured Creditors
25
Committee and the board of directors of
Well, the protocols are as I really have three bosses.
TSG Reporting - Worldwide (877) 702-9580
I
U.S.
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2
Lehman Brothers.
3
protocols which we respect for various
4
decision-making authority and anything up
5
to -- I think in real estate it's zero to
6
$10 million requires the head of the team
7
to sign off on it.
8
$10 million requires either John Suckow or
9
Bill Fox to sign off on it as well as the
What we have are we have
Anything in excess of
10
head of the team.
11
$25 million requires my sign-off, John,
12
Bill, team head and the manager proposing
13
it, and we, in turn, would take it -- we
14
would take it to the Unsecured Creditors
15
Committee and probably the court.
16
in excess of $50 million we would take to
17
the court, the unsecured-creditors
18
committee and that whole line-up I just
19
went through.
20
balances -- and the board.
21
Creditors Committee and the court would all
22
be involved in a material decision of that
23
nature.
24
been developed and it's been working pretty
25
well, pretty well for the last -- maybe a
Anything in excess of
Anything
So we have checks and The Unsecured
So we have protocols that have
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341 Creditors Meeting
2
blip here or there on derivatives, we are
3
maybe not communicating as well as we
4
could, but aside from an occasional blip it
5
has been working pretty well.
6
MR. VELEZ-RIVERA:
7
SPEAKER:
Next question.
Alex (inaudible), Bank of
8
America.
9
the 27 billion is fixed in special purpose
You mentioned that 40 percent of
10
entities.
11
that 40 percent?
12
Have you reserved fully against
MR. MARSAL:
No.
We are not going
13
to answer that.
14
anything about a specific -- what we
15
actually reserved against.
16
you that there is 27 billion.
17
until the middle of August, you are going
18
to have a revaluing of that 27 billion
19
which will have a calculation of gross
20
reserves against gross receivables.
21
no circumstances are we ever going to tell
22
you what we reserved against an individual
23
settlement.
24
wouldn't want us to do that.
25
We are not going to answer
We kind of told If you wait
That would be foolish.
SPEAKER:
Well, so just the 27
TSG Reporting - Worldwide (877) 702-9580
Under
You
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341 Creditors Meeting billion --
3 4 5
MR. EHRMANN:
Has no reserves in
there. SPEAKER:
Right, but then we spoke
6
about 16 billion of reserves and
7
effectively taking against that 27
8
billion --
9
MR. EHRMANN:
Bryan said that there
10
is an internal estimate, is what I think
11
you said, of $11 billion.
12
reserves have been taken.
13
SPEAKER:
Okay.
So no formal
So of the 16
14
billion theoretical uncollectability, you
15
had mentioned that it was broken up into
16
three groups, right?
17
counterparties and one was terminations.
18
Can you give us a rough estimate of the
19
split between that 16 billion of
20
uncollectability?
21
MR. EHRMANN:
One was SPVs, one was
I think the split is
22
exactly in that order, i.e., the biggest
23
portion would be SPVs, the next would be
24
(inaudible), and the last would be
25
terminations. TSG Reporting - Worldwide (877) 702-9580
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2
SPEAKER:
And the calculation of
3
terminations, that's just closing costs
4
or --
5
MR. EHRMANN:
It's a number of
6
different situations.
7
termination dates, disagreement on
8
valuation methodologies, disagreements on
9
the sources of information, disagreements
It's disagreement on
10
on the actual population that's being
11
trying to be collected.
12
number of valuation related issues.
13
MR. MARSAL:
It's a various
But we don't want to
14
get into -- the last thing I want to do is
15
step on a land mine.
16
told you the $11 million number because now
17
you are pursuing it.
18
going to get a number that's going to be a
19
gross number on derivatives with a gross
20
reserve against it and we are never going
21
to share with you how much we have reserved
22
against an individual derivative, because
23
obviously we are in pretty serious
24
negotiations with people, but for
25
accounting purposes we have to.
I should never have
In August you are
TSG Reporting - Worldwide (877) 702-9580
So you are
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341 Creditors Meeting
2
not going to get any more detail from us.
3
The only detail you might get is something
4
that would not jeopardize our negotiating
5
position.
6
SPEAKER:
Well, I am not trying to
7
do that.
8
mentioned the 27 billion and then you said
9
that 40 percent of that 27 is basically
Just roughly, you know, you
10
(inaudible) the vast majority of those
11
three buckets are (inaudible) and if I do
12
that 40 percent, it's about 11 billion, so
13
now in this theoretical uncollectability I
14
am trying to sort of --
15
MR. EHRMANN:
The reason why I think
16
we are reluctant to break it out, because
17
obviously one of our key strategies is to
18
litigate these issues right to the end, so
19
putting a number on that right now would --
20
MR. MARSAL:
We are just not going
21
to give you the kind of response that you
22
keep gunning for.
23
you how much those SPVs were reserved.
24
Sorry.
25
next question.
We are not going to tell
You can forget it.
Go on to the
TSG Reporting - Worldwide (877) 702-9580
Page 72 1 2
341 Creditors Meeting SPEAKER:
All right.
Next question.
3
I guess in the last meeting you spoke about
4
a certain amount of collateral that you
5
believed JPMorgan held.
6
sort of those discussions and how much do
7
you think -- how much collateral do you
8
think JPMorgan still has?
9
MR. MARSAL:
Where are we in
Because of the
10
sensitive nature of it, I think we have got
11
to be very careful about what we say here.
12
MR. SUCKOW:
I was just going to
13
say, it's a substantial amount of
14
collateral and I think for the benefit of
15
the creditors the less detail we share with
16
you, the better.
17
SPEAKER:
18
MR. VELEZ-RIVERA:
19
SPEAKER:
Thank you. Next question.
I am (inaudible).
I just
20
have a quick question on slide 16 when you
21
talked about the 22 billion, 23 billion of
22
pre-petition real estate.
23
last 341 you talked about 11 billion of
24
this being pledged to somebody.
25
much of this is pledged or unpledged now?
I think in your
TSG Reporting - Worldwide (877) 702-9580
So how
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341 Creditors Meeting
2
MR. FITTS:
Equating it back to the
3
January 341 hearing?
4
SPEAKER:
5
MR. FITTS:
Yes. The answer is
6
approximately $6 billion is unpledged and
7
the other 11 is included in what was shown
8
before under Chase and Bankhaus.
9
going to get you back to the $17 billion
10
That's
number.
11
SPEAKER:
Right.
And I think
12
somebody asked a related question earlier,
13
but can you talk about like you talked
14
about for the derivatives which buckets
15
this real estate is at?
16
(inaudible), or where is this actually
17
located?
18
MR. FITTS:
Is it all at LBHI,
The vast majority is
19
LBHI and LCPI and I think the third big
20
bucket would be PAMI.
21
the three big legal entity buckets.
22 23
SPEAKER:
I'm sorry, what was the
third bucket?
24 25
I think those are
MR. FITTS:
PAMI.
It's a non-debtor
sub. TSG Reporting - Worldwide (877) 702-9580
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SPEAKER:
And my final question in
3
regards to the cash balances, you talk
4
about segregated funds there.
5
segregated for?
6
MR. MARSAL:
Page 10.
Who are they
It varies.
7
mean, you have got -- look at the
8
footnotes.
9
per court order, stipulation or debtors'
10
I
Footnote D, "amounts segregated
preliminary estimate of third party funds."
11
MR. SUCKOW:
The vast majority of
12
this, the billion 5, relates to collateral
13
pledged in the structures, from some of the
14
previous (inaudible), would be cash either
15
(inaudible) position, principal or interest
16
related to structures where (inaudible).
17
SPEAKER:
So it's pledged
18
(inaudible) the SPVs and not to clearing
19
banks?
20
MR. SUCKOW:
It could be -- a
21
significant chunk of this, I can't be
22
exact, but a significant chunk is related
23
to clearing banks.
24
SPEAKER:
25
MR. MARSAL:
Okay.
Thank you.
It would be captured in
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2
structures and those structures are
3
securitized (inaudible) and collateral
4
(inaudible) clearing bank.
5
SPEAKER:
John (inaudible) from
6
(inaudible).
7
then I'd like to go back to the
8
derivatives.
9
claims for accounting purposes were the
First a question on repo and
Can you tell us on the repo
10
repo claims that were intercompany
11
accounted any differently than the
12
third-party repo claims?
13
MR. FOX:
We accounted for them the
14
same way in the latest MOR statements where
15
we have offset the repo claim against the
16
loan for purposes of the balance sheet
17
presentation.
18
SPEAKER:
And as a follow-up, when
19
repo was done intercompany, let's say a
20
repo asset, would any collateral move or
21
was it just kept somewhere within the
22
estate?
23
MR. FOX:
Collateral would be held
24
by the counterparty, so we don't know if
25
any of that collateral moved, per se, so if TSG Reporting - Worldwide (877) 702-9580
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2
it was pledged -- if it was repoed through
3
LBI, that's information that we need to get
4
from LBI.
5
SPEAKER:
Understood.
Back to the
6
derivatives then, of the 27 billion,
7
(inaudible) 40 percent are facing SPVs.
8
the remainder of them, can you give us a
9
feel for what dollar amount are open
10
transactions?
11
like 9 billion of prior exposure.
12 13 14 15
Of
I think it was something
MR. EHRMANN:
Based on the basis of
the 27 billion, it's about 30 percent. SPEAKER:
30 percent would be open?
And if you think about that same --
16
MR. EHRMANN:
17
SPEAKER:
More like 20 percent.
And of the same amount of
18
derivatives that are not facing SPVs, can
19
you give us a feel for what percent of that
20
are (inaudible) derivatives as opposed to
21
commodities and so forth?
22
MR. EHRMANN:
23
SPEAKER:
No, I can't.
And of the 20 percent that
24
are still open, can you give us a feel
25
whether that is interest rates, commodities TSG Reporting - Worldwide (877) 702-9580
Page 77 1 2 3
341 Creditors Meeting or something different? MR. EHRMANN:
I think the important
4
piece in the open population is to know
5
what portion of the population the value
6
has been locked in and I think that we feel
7
that probably 30 percent of the value has
8
been locked in through hedges or other
9
mechanisms and we are working on locking in
10 11
the remainder in the next coming weeks. SPEAKER:
So just to clarify, the
12
20 percent that's open, 30 percent of that
13
or 6 percent of the total?
14
MR. EHRMANN:
15
SPEAKER:
Thank you very much.
16
SPEAKER:
(Inaudible) with Elliot.
Yes.
17
40 percent of the value of the derivative
18
facing SPVs, can you tell me how much of
19
that is rates and how much of that is CDS?
20
MR. EHRMANN:
21
was just asked.
22
information with me.
23
SPEAKER:
I think that question
I don't have the
I mean, I believe that
24
back in May there was a disclosure that
25
3.6 billion of the CDS value was facing TSG Reporting - Worldwide (877) 702-9580
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2
SPEs.
3
in terms of this 40 percent split?
4
Is it fair to still think about that
MR. EHRMANN:
I am not sure what
5
disclosure you are referring to when you
6
say "back in May."
7
SPEAKER:
8
MR. MARSAL:
9
I'm not sure where it is. I just really believe
that you need to be patient until mid
10
August, get the breakdown of what we have
11
in mid August, and then to the extent that
12
that's not satisfactory, give a call to
13
Daniel and we, to the best of our ability,
14
without sharing insider information, will
15
try and clarify that schedule for you.
16
MR. EHRMANN:
17
CDS.
18
percentage.
19
The vast majority is
I just don't want to give you a
MR. MARSAL:
I know where all of
20
this is going.
21
I just hate giving you parts of information
22
like this.
23
You are going to have hopefully a much
24
clearer picture than you have today.
25
You know where it's going.
You gotta wait another 30 days.
SPEAKER:
Thank you.
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2
SPEAKER:
Tim (inaudible) from
3
(inaudible).
4
questions.
5
assets on the sub participation of LCPI
6
show up in the schedules (inaudible)?
I have got a couple of First of all, where do the
7
MR. MARSAL:
8
SPEAKER:
9
Yes, the sub participation
(inaudible).
10 11
LCPI?
MR. MARSAL:
I am not sure -- I
still -- a little slower for the reporter.
12
SPEAKER:
Where do assets on sub
13
participation at LCPI show up in these
14
operating reporting schedules?
15
MR. FOX:
I don't think -- can you
16
rephrase your question a little
17
differently.
18
the --
19 20 21
SPEAKER:
I'm not sure we understand
Any assets that are
subparted out to the third parties by LCPI. MR. FOX:
If LCPI is the legal
22
holder of the asset, then it's shown on
23
LCPI's books and records, so you are asking
24
if there are any participations, economic
25
participations for third parties? TSG Reporting - Worldwide (877) 702-9580
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341 Creditors Meeting
2
SPEAKER:
Yes.
3
MR. FOX:
That's what you are
4
asking?
5
SPEAKER:
6
MR. LAMBERT:
Where does it show up? If it's a funded
7
participation, it shows up on the legal
8
entity that actually funded that
9
participation and that would be the same
10 11
case for any unfunded liabilities. SPEAKER:
All right.
And then just
12
a quick follow-up.
13
that the joint real estate assets, LCPI,
14
LBHI, is that the same for the private
15
equity assets?
16
MR. FOX:
I think you mentioned
No.
Private equity assets
17
are held by LBHI and also held by a
18
non-debtor sub known as LB1 group, as well
19
as a few other non-debtor subs.
20
THE WITNESS:
21
SPEAKER:
Thank you.
Scott (inaudible) from
22
(inaudible) Partners.
23
40 percent of the derivatives involved in
24
SPEs, is it fair to say that that's mostly
25
at LBHI?
Regarding the
TSG Reporting - Worldwide (877) 702-9580
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2
MR. EHRMANN:
3
MR. MARSAL:
Yes. Yes.
If you look at
4
the schedule, page 21, LBSF, the receivable
5
is 21.7 and 27.6.
6
SPEAKER:
7
Deutsche Bank.
8
assets that were pledged to repos in the
9
most recent schedules, were those done on
Jeff (inaudible) from When you guys net out the
10
book basis or some estimate of market
11
value?
12
MR. FOX:
The netting of the repo
13
assets were done on a book basis.
14
have a current market valuation for those
15
situations.
16
SPEAKER:
Okay.
Would there be
17
potentially any deficiency claims
18
associated with those?
19
MR. FOX:
We don't
There could be, yes, there
20
could be some deficiency claims if it went
21
that way.
22
It's possible.
SPEAKER:
And on the 60 percent away
23
from the SPEs, can you give us any big
24
buckets as far as counterparty type?
25
there a lot of monoline exposure there as TSG Reporting - Worldwide (877) 702-9580
Is
Page 82 1 2 3
341 Creditors Meeting opposed to corporates, broker/dealers? MR. EHRMANN:
Most of the trades
4
were with major financial institutions.
5
35 percent of the trade population was with
6
what we call big banks.
7
SPEAKER:
The only reason why I ask
8
is I thought those guys would have posted
9
collateral on almost a nightly basis, so
10
any receivable would have more likely been
11
due from someone not posting collateral
12
regularly.
13
MR. EHRMANN:
A lot of the -- as a
14
result of the bankruptcy and the
15
termination right that the counterparty
16
has, a lot of those receivables turned into
17
payables.
18
SPEAKER:
Thanks a lot.
19
SPEAKER:
Michael Stern from
20
(inaudible).
21
much farther, but I just want to make sure
22
I understand clearly, whatever estimate you
23
guys have internally now for recovery,
24
whatever number will end up being the
25
estimated recovery in the schedules that
Not to belabor this issue too
TSG Reporting - Worldwide (877) 702-9580
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2
come out in August, will that take into
3
account all three of the factors that you
4
talked about, the SPE issue, the set-off
5
issue and the termination issue where your
6
best estimates in the aggregate of those
7
things will come out, or will they assume
8
that what people have asserted is where you
9
start and then you get some recovery after
10 11 12 13
that? MR. EHRMANN:
What we will try and
provide is realizable value (inaudible). SPEAKER:
(Inaudible) termination
14
disputes and all of the other factors,
15
where do you think those things will come
16
out on a conservative basis at the end of
17
the day?
18
MR. EHRMANN:
That's correct, with
19
the caveat that we are going to try to
20
protect our leading positions as much as we
21
can in order to enhance that recovery.
22
SPEAKER:
Okay.
23
SPEAKER:
Joe Jackson from
24
(inaudible).
25
$50 billion intercompany receivable at LBHI
My question is related to the
TSG Reporting - Worldwide (877) 702-9580
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2
that you mentioned on a net basis.
3
you let us know when that disclosure is
4
going to be available, how you net to get
5
to 50 billion?
6
there is $150 billion receivable listed on
7
the schedules as amended as opposed to the
8
same date as the original schedules, and
9
then there is a $90 billion payable, some
Could
Because as I look at it,
10
of which is to the entity BV.
11
just took 150 minus that 90, it still
12
remains $60 billion, which is in excess of
13
the 50.
14
don't always relate to the same entities
15
the receivables are due from, so it seems
16
like the aggregate balance should actually
17
be significantly in excess of 50.
18
If you even
Not only that, but the payables
MR. MARSAL:
It's an incomplete
19
story we are given.
20
generation of cash and focusing on the
21
illiquid assets that we have within our
22
control.
23
with that and getting smarter and smarter
24
and we know what we have to do with those
25
assets.
Our focus has been
Obviously we are coming to grips
Now our focus of attention has to TSG Reporting - Worldwide (877) 702-9580
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2
go to the intercompany.
3
to say to you in a nice way to the other
4
receivers, though, to you about the other
5
receivers is that the success of our
6
understanding the situation on the
7
intercompany largely depends on the
8
cooperation and the transparency that we
9
have from the other receivers, in
What we are trying
10
particular, LBI and LBIE.
11
that we have that transparency and we have
12
that assistance, then, in fact, we can
13
address your intercompany questions,
14
because those are the two largest players
15
out there, two of the larger players out
16
there that we today do not have a handle
17
on.
18
because that hasn't been the focus.
19
focus has been on the assets, the illiquid
20
assets and the collection of cash.
21
that focus is changing, so now we have to
22
focus not on the derivative receivables,
23
but now we have to focus on the derivative
24
payables.
25
intercompany receivables due to and due
To the extent
Now, it hasn't been an issue to date, The
Now
We have to focus on the
TSG Reporting - Worldwide (877) 702-9580
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2
from.
It's just a different stage of the
3
case.
So we are going to get a lot smarter
4
on the intercompany, but we are nowhere
5
near there (inaudible).
6
SPEAKER:
Do you anticipate using a
7
similar methodology where you have a
8
reserve against the intercompany
9
receivables or is that not --
10 11 12
MR. MARSAL:
We haven't even talked
about that. SPEAKER:
Okay.
And then last
13
question.
14
the updated schedules and the updated MORs,
15
I think October 2nd and October 4th, it
16
listed the derivative assets and
17
liabilities as being updated to the extent
18
that you had updated valuations or updated
19
to the extent that you had received
20
termination notices.
21
idea of percentage of that book that was
22
either updated for updated values or that
23
was terminated, i.e., percentage of the
24
assets that, for instance, LBSF, I believe
25
it went from 20 billion to around
In terms of the derivatives on
Could you give us an
TSG Reporting - Worldwide (877) 702-9580
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2
$21 billion, what percentage of those
3
derivatives was updated subsequent to 9-14
4
or 10-2 or 9-30?
5
MR. EHRMANN:
So the vast majority
6
is (inaudible) the disclaimer points out,
7
all of the trade population (inaudible)
8
thousands which represents approximately
9
85 percent of the trade population, we
10
actually did not
11
Those are September 12th valuations.
12
the remainder, I will say two-thirds of
13
those we had updated historical information
14
that we got through our transition services
15
agreement with Barclay's.
16
imperfect valuations, but they were
17
valuations.
18 19 20
SPEAKER:
update the valuations. For
Those qualify as
And some of them related
to terminated values? MR. EHRMANN:
Exactly.
Some of them
21
related to terminated valuations, but we
22
would have then used the valuation that we
23
got through our transition services
24
agreement with Barclay's.
25
SPEAKER:
Thank you.
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341 Creditors Meeting
2
SPEAKER:
(Inaudible).
Just a
3
follow-up question on private equity real
4
estate assets.
5
assets you said that a majority of the
6
assets are actually controlled by LBHI and
7
LB1.
8
roughly how much is controlled by LBHI
9
vis-a-vis LB1 and is LB1 a hundred percent
10 11
On the private equity
Could you provide a rough estimate of
owned by LBHI? MR. McCARTHY:
With regard to
12
private equity assets and going down
13
through the entities here for the assets
14
classes, in the private equity group, which
15
is basically the Lehman Brothers, this is
16
on page 15, on the private equity group
17
those are the former Lehman Brothers
18
private equity funds, independently
19
operated funds, (inaudible) management
20
companies there.
21
controlled by LBHI, but through non-debtor
22
vehicles that are sole purpose vehicles.
23
So I would say that those are primarily
24
controlled by LBHI at that point.
25
direct investments, the majority of those
Those (inaudible)
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The
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2
direct investments are through LB1 Group
3
and the majority GP and LP investments are
4
through LB1 group.
5
are through a variety of other subsidiaries
6
and, again, most of those are non-debtor
7
subsidiaries (inaudible).
8
investment is not controlled by us or by
9
the receivers, they are primarily KPMG
10 11
The Asian investments
The Asian
controlled assets, which is at the bottom. SPEAKER:
Okay.
Thanks.
And could
12
you provide a break-out of real estate
13
assets?
14
MR. McCARTHY:
I don't have on the
15
real estate side a break-out.
16
you that LCPI as a general matter was used
17
for the straight bank debt.
18
where the equity investments were, I don't
19
have with me the break-out of (inaudible).
I can tell
(Inaudible)
20
SPEAKER:
Thank you.
21
SPEAKER:
I am (inaudible).
My
22
understanding is a number of the U.S.
23
debtors that were produced as subsidiaries
24
of LBI were transferred into ALI, Inc. at
25
the end of September.
I would be
TSG Reporting - Worldwide (877) 702-9580
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341 Creditors Meeting
2
interested in how you think about any claim
3
on value of ALI or the U.S. debtors within
4
ALI moving to LBI?
5
debtors who were previously subsidiaries of
6
LBI that were then transferred back in
7
September to ALI, Inc.
8
there is a note held by LBI against ALI.
9
would be interested in your thoughts on
There were some U.S.
My understanding is I
10
potential value that might go to LBI from
11
ALI or the U.S. debtors as (inaudible) that
12
note.
13
MR. WAISMAN:
The note you refer to
14
(inaudible) to LBI for the transfer of
15
those subsidiaries contemplates a valuation
16
of those assets and entities that were
17
transferred.
18
completed, so we can't speculate as to what
19
value may or may not be transferred as a
20
result.
21
SPEAKER:
That valuation has not been
And that valuation is
22
against ALI, is it potentially against some
23
of the value from the new ALI subs that
24
were previously LBI?
25
MR. WAISMAN:
The valuation
TSG Reporting - Worldwide (877) 702-9580
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341 Creditors Meeting
2
contemplated is a total valuation of all of
3
the entities slash assets that were
4
transferred to (inaudible).
5
SPEAKER:
Is there an estimate of
6
when the valuation of that note might be
7
completed and is there going to be
8
disclosure on it?
9
MR. WAISMAN:
There will be
10
disclosure when it is completed, there
11
definitely will be disclosure, but we don't
12
have an estimate at this point.
13
SPEAKER:
So it's unclear whether
14
value from ALI or the U.S. subs that are
15
part of that will (inaudible) LBI?
16
MR. WAISMAN:
That's right.
It is
17
unclear whether there will be any value
18
transferred or what -- if there is value,
19
what the rate will be.
20
estimation.
There is no
21
SPEAKER:
Thank you.
22
SPEAKER:
Rubin (inaudible) from
23
Capital Management.
24
LBI mentions that if there are potential
25
claims from its former subsidiaries,
In one of its filings
TSG Reporting - Worldwide (877) 702-9580
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341 Creditors Meeting
2
presently (inaudible) subsidiaries were
3
subordinated, some of those subsidiaries
4
will be (inaudible) creditors.
5
understanding that those claims are
6
actually subordinated at LBI?
7
MR. WAISMAN:
8
filing.
9
referring to?
Is it your
You are referring to a
Is there a specific filing you are
10
SPEAKER:
11
MR. WAISMAN:
In -- yes.
(Inaudible).
I think you are
12
referring to a report filed by the SIPA
13
trustee for Lehman Brothers, Inc.
14
SPEAKER:
15
MR. WAISMAN:
That's correct. So not (inaudible) a
16
filing that these estates made.
17
trustee refers to certain subordination
18
agreements.
19
that (inaudible) are reviewing.
20
have to come to a determination as to their
21
enforceability.
22
The SIPA
Obviously those are agreements
SPEAKER:
Understood.
We will
So you have
23
no opinion as of yet as to whether that
24
subordination or -- let me rephrase it.
25
many of those schedules you have filed TSG Reporting - Worldwide (877) 702-9580
In
Page 93 1
341 Creditors Meeting
2
those include former subsidiaries of LBI
3
and you present some intercompany claims
4
against LBI.
5
this point that any of those are
6
subordinated or is it your understanding
7
that they are not subordinated as
8
represented in any of the schedules?
9
Is it your understanding at
MR. WAISMAN:
I think it's fair to
10
say that it is not our understanding either
11
way.
12
agreements and the situation and we will
13
come to a conclusion.
14
We are reviewing the subordination
SPEAKER:
Thanks.
Last follow-up
15
question of that.
16
that there was a subordination agreement,
17
can you (inaudible) if there was
18
subordination or was there any
19
consideration given to the subsidiaries,
20
because it sounds like potentially
21
subordination was to satisfy regulatory
22
requirements at LBI, (inaudible) which
23
accrues to the owner of LBI, which is LBHI.
24
Since these were subsidiaries of LBI, was
25
there any (inaudible) consideration
Inasmuch as the claim is
TSG Reporting - Worldwide (877) 702-9580
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341 Creditors Meeting
2
provided for subordinated claims as far as
3
you know?
4
MR. WAISMAN:
That is an excellent
5
question.
6
that we would be looking at in reviewing
7
the subordination agreements and their
8
enforceability.
9 10
It's certainly one of the issues
SPEAKER:
Thank you very much.
MR. VELEZ-RIVERA:
11
Next question.
12
SPEAKER:
Anyone else?
Paul Goldschmidt
13
(phonetic) from Kings Street.
14
schedules there was a table Other
15
Transfers, it was 10A, and it included cash
16
of about 7 billion in JPMorgan, 1.7 billion
17
of money funds and 8 billion of securities
18
that had been transferred to JPMorgan in
19
the last six months.
20
that was included in the schedules and do
21
you mind just elaborating on what these
22
transfers are?
23
of 2 billion and Bank of America
24
(inaudible) the litigation, 500 million.
25
In the filed
Can you explain why
There is one from Citigroup
MR. WAISMAN:
I believe the schedule
TSG Reporting - Worldwide (877) 702-9580
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341 Creditors Meeting
2
you are referring to requires the debtor to
3
list all transfers of property within a
4
certain period of time.
5
debtor's belief that that information that
6
was put on the schedule was responsive to
7
the question asked by the schedules and
8
that's why it was listed on the schedules.
9
SPEAKER:
It was the
The weird one to me was
10
the JPMorgan, the 8 billion, just because
11
there were so many other transfers of other
12
counterparties.
13
highlighted?
14
Why was the 8 billion
MR. WAISMAN:
That was a significant
15
transfer of property of the estate or of
16
Lehman Brothers occurring within the
17
specified period that we felt we had an
18
obligation to list in response to the
19
question that the schedule was asking.
20
SPEAKER:
And is that outside of the
21
JPMorgan pledges that are in the
22
presentation?
23
MR. WAISMAN:
I believe that the
24
presentation encompasses some of the
25
collateral posted to JPM, but whether all TSG Reporting - Worldwide (877) 702-9580
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2
of it was -- the schedule is simply in a
3
certain time span, I believe it was the 90
4
day schedule you are referring to, and
5
this -- what was presented today reflects
6
ultimately all that was posted without
7
regard to time, so there may be a slight
8
disconnect there, but they do overlap.
9
SPEAKER:
And Bryan, obviously I
10
don't want to put words in your mouth, but
11
when you talk to the Wall Street Journal or
12
talk about the assets in the estate, you
13
often talk about the real estate assets and
14
you sort of ignore the pledges when you
15
talk about them.
16
expecting them to be unpledged or --
17
MR. MARSAL:
Is that because you are
No.
What has happened
18
is the moneys you are talking about in the
19
schedule, assets are cash that was pledged
20
within a 90-day period to JPMorgan,
21
Citibank and others for clearing bank or
22
other issues that would come out.
23
done within the last -- the 90 days prior
24
to the proceeding.
25
we owe them $1.3 billion against what they
That was
JPMorgan believes that
TSG Reporting - Worldwide (877) 702-9580
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341 Creditors Meeting
2
call a clearing overdraft, 1.3 billion.
3
Against that clearing overdraft of
4
1.3 billion is all these pledged assets
5
which remain, so I think they are -- in our
6
view they seem to be very well
7
collateralized, so when we look at the
8
pledged assets, the reason we refer to
9
them -- I think there is what, John, 6 or 7
10
billion of pledged assets against it,
11
approximately?
12
MR. SUCKOW:
Yes.
13
MR. MARSAL:
6 or 7 billion of
14
pledged assets against the 1.3 billion that
15
they claim we owe them, and we are not
16
agreeing that we owe that 1.3, by the way,
17
but in any event we believe there is
18
substantial value going to flow to us and
19
that's why we were managing those assets
20
(inaudible).
21 22
SPEAKER:
And is the cash on top of
the pledged assets?
23
MR. MARSAL:
Yes.
24
MR. SUCKOW:
Just to be clear, the
25
1.3 is netted cash so it was 8 billion less TSG Reporting - Worldwide (877) 702-9580
Page 98 1 2 3
341 Creditors Meeting 6.7 billion. SPEAKER:
And have you done work on
4
what you think --
5
MR. SUCKOW:
As I said earlier, we
6
could spend a lot of time talking about
7
legal theory.
8
would benefit this group too much.
9 10 11
I really don't think it
MR. VELEZ-RIVERA:
That's it.
Next
question. SPEAKER:
Bob Ryan with Elliot
12
(inaudible).
13
$16 billion figure that was tossed out
14
there, I think there is some risk that the
15
counterparties that we are facing, maybe in
16
this room, when they read that number they
17
may dig in their heels from a litigation
18
perspective, concluding that, hey, we are
19
home free, Lehman doesn't think they can
20
collect on the claim.
21
worthwhile for the estate, if it chose to
22
set the record straight on the record,
23
about the lengths to which Lehman is
24
prepared to go to protect its rights and to
25
enforce its claims (inaudible) its facing
I think there is -- given the
I think it would be
TSG Reporting - Worldwide (877) 702-9580
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2
SPVS or other counterparties.
3
MR. VELEZ-RIVERA:
4
SPEAKER:
Your question is?
To what lengths will
5
Lehman go to protect its rights on the
6
claims?
7
MR. MARSAL:
Just assume whatever it
8
takes.
9
going to defend the rights of the estate
Whatever it takes.
I mean, we are
10
and I would assume -- unfortunately, I
11
shouldn't have thrown the number out, but
12
it's out there.
13
that number.
14 15 16
SPEAKER:
My bad.
We now will beat
You can change it if you
want. MR. MARSAL:
We will beat that
17
number.
18
number haven't missed a number yet.
19
The people who have provided the
MR. WAISMAN:
I think it is also
20
fair to say that there are a significant
21
number of people devoted to the task from
22
A&M, from Lehman, and a very large team at
23
Weil Gotshal as well spending a significant
24
amount of time focused on the issues and as
25
Bryan points out they will (inaudible). TSG Reporting - Worldwide (877) 702-9580
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341 Creditors Meeting
2
MR. EHRMANN:
One last point on
3
that.
4
that currently we have settled 8 percent of
5
the population, (inaudible) of the 106,400
6
counterparties.
7
that is we are fighting for every single
8
dollar tooth and nail and I think it's a
9
message that the street has -- has been
10
I think it's also important to note
One of the reasons for
(inaudible) by the street.
11
SPEAKER:
Do some of those claims
12
include claims that otherwise absent
13
settlement would have been reserved
14
against?
15
MR. EHRMANN:
Had they been
16
reserved, they would have been reserving in
17
the values that we received, i.e., fair
18
value or (inaudible).
19
MR. VELEZ-RIVERA:
20
SPEAKER:
Next question.
John (inaudible), Goldman
21
Sachs.
22
guess the timing for resolution of all the
23
derivative claims?
24
milestones that can occur before initial
25
distribution can actually be made?
Could you just talk about your best
Can you just talk about
TSG Reporting - Worldwide (877) 702-9580
Page 101 1 2
341 Creditors Meeting MR. MARSAL:
Well, what you see in
3
that last schedule, in terms of timetables,
4
I don't think realistically that until the
5
third anniversary of this case, as
6
disappointing as that might be.
7
your asset picture will be clear by the
8
second anniversary of the case.
9
think your derivative picture will be clear
I think
I don't
10
until the third anniversary of the case,
11
and as far as intercompany is concerned, we
12
just don't know.
13
the other receivers are going to approach
14
things and whether or not transparency --
15
we also don't appreciate the complexity of
16
their problems, so because we have no
17
transparency -- I'm not casting any
18
aspersions at anyone.
19
don't know.
20
we are really behind the 8 ball on LBIE.
21
Until we have those answers, this thing
22
will go on and on and on, but in terms of
23
the derivatives, I would say the third
24
anniversary of the case would be our best
25
guess today.
We don't know how quickly
I am just saying we
We are in the dark on LBI and
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Page 102 1 2
341 Creditors Meeting SPEAKER:
Can a distribution occur
3
before complete resolution of that or
4
(inaudible) --
5
MR. MARSAL:
That has been discussed
6
with the Unsecured Creditors Committee,
7
it's just a topic, so you should -- I am
8
going to ask you to direct your comments to
9
the Unsecured Creditors Committee and their
10
counsel if you have got something to put
11
on, but I certainly would not be opposed if
12
we can legitimately -- if we could put a
13
reasonable box around the claims,
14
particularly at subsidiary levels.
15
sure it's going to be possible at Holdings,
16
but it's possible at a subsidiary level
17
they can do that.
18
SPEAKER:
I'm not
And then last question,
19
going back to non-debtor subsidiaries that
20
hold private equity and other principal
21
investing assets, just entities such as LB1
22
Group, how many of those entities actually
23
have third-party liabilities where those
24
asset values actually (inaudible) back up
25
to the holding company? TSG Reporting - Worldwide (877) 702-9580
Page 103 1 2
341 Creditors Meeting MR. McCARTHY:
There is actually
3
very few third-party liabilities with
4
regard to debt at any of those entities.
5
The largest liability listed in the
6
right-hand column, which is the (inaudible)
7
commitments, so those have to be considered
8
liabilities.
9
number has been reduced from 4.4 billion as
So related to that, that
10
of the bankruptcy date down to what we
11
listed here at 2.7, so as Bryan mentioned
12
earlier, we are working very diligently on
13
that number and managing that down.
14
MR. MARSAL:
The big threat to the
15
valuations on the private equity portfolio
16
is aside from market risk, which is the
17
market deteriorating, the big threat to us
18
is not being able to fund our obligation
19
and thus suffering a severe dilution
20
(inaudible).
21
task at hand, is how to manage that in a
22
way that's sensible for the estate given
23
what we have in investment exposure, and
24
yet in a liquidating situation putting more
25
money into a private equity fund is very
We have been -- that's the
TSG Reporting - Worldwide (877) 702-9580
Page 104 1
341 Creditors Meeting
2
difficult for us to do.
3
difficult to swallow on one hand, but the
4
losses are difficult to swallow on the
5
other, so that balancing act is really --
6
is a major challenge.
I mean, it's very
7
MR. VELEZ-RIVERA:
8
Ladies and gentlemen, thank you.
9 10 11
Anyone else?
The meeting of the creditors is concluded. Thank you again. (Time noted:
12:07 p.m.)
12 13 14 15 16 17 18 19 20 21 22 23 24 25
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Page 105 1 2
C E R T I F I C A T E
3 4
STATE OF NEW YORK
)
5 6
) ss.: COUNTY OF NASSAU
)
7 8
I, KRISTIN KOCH, a Notary Public
9
within and for the State of New York, do
10
hereby certify that the within is a true
11
and accurate transcript to the best of my
12
ability of the proceedings held on July 8,
13
2009.
14
That I am not related to any of the
15
parties to this action by blood or
16
marriage; and that I am in no way
17
interested in the outcome of this matter.
18
IN WITNESS WHEREOF, I have hereunto
19
set my hand this 9th day of July, 2009.
20
-------------------------
21
KRISTIN KOCH, RPR, RMR, CRR
22 23 24 25
TSG Reporting - Worldwide (877) 702-9580
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