By Caroline Humer and Jonathan Stempel
NEW YORK, May 7 (Reuters) - Lehman Brothers Holdings Inc is seeking court permission to restructure the balance sheet of Archstone-Smith Trust, cutting $5.2 billion of debt from an ill-timed leveraged buyout that contributed to its record bankruptcy.
The $22.2 billion takeover of the nation's second-largest real estate investment trust in 2007 had added hundreds of prime apartment buildings to Lehman's portfolio, but also saddled it with billions of dollars of new debt as the U.S. property market deteriorated.
Lehman owns 47 percent of Archstone, Barclays Plc and Bank of America Corp share another 47 percent, and the banks collectively invested $4.8 billion of equity into Archstone, a court filing shows.
Tishman Speyer Properties, a New York real estate firm, joined with Lehman in the 2007 buyout.
In the restructuring, Lehman wants to swap $5.2 billion of loans used to fund the buyout into preferred equity interests, which would be senior to existing preferred and common equity, according to court documents filed on Thursday.
It said the swap would reduce Archstone's interest payments by at least $150 million annually. Lehman also proposed to extend maturities on other financings, creating more time to pay off debts.
The proposal 'is the best solution to stabilize Archstone's balance sheet, minimize the need for additional owner capital infusions and preserve the debtors and their affiliates' substantial investment' in Archstone, wrote Shai Waisman, a Weil, Gotshal & Manges LLP partner who represents Lehman.
Waisman added that while new preferred equity holders would relinquish their secured debt positions, the absence of a swap would leave their chances of recovery 'prone to uncertainty if concerns regarding Archstone's balance sheet are not addressed in short order.'
The proposal requires approval by U.S. Bankruptcy Judge James Peck in Manhattan, and is subject to agreement by Barclays and Bank of America.
Barclays spokesman Brandon Ashcraft and Bank of America spokesman Bill Halldin declined to comment. Tishman Speyer did not immediately return a call seeking comment.
Anton Valukas, Lehman's court-appointed examiner, in a March report, cited Archstone as among a handful of real estate transactions that Lehman made at the top of the market, and which caused its balance sheet to grow too large.
'Because of the extraordinary size of the transaction,' Valukas wrote, 'it was clear from the beginning that the Archstone commitment would cause Lehman to exceed its risk appetite limits.'
Lehman's Sept. 15, 2008 bankruptcy is by far the largest in U.S. history. In March, it said creditors' claims should be reduced to $605 billion, and that allowed claims might ultimately decline to $260 billion.
The case is In re: Lehman Brothers Holdings Inc et al, U.S. Bankruptcy Court, Southern District of New York, No. 08-13555.
(Reporting by Caroline Humer and Jonathan Stempel; Editing by Tim Dobbyn and Carol Bishopric) Keywords: LEHMAN/ARCHSTONE (Caroline.Humer@thomsonreuters.com; Tel: 1-646-223-6181; jon.stempel@thomsonreuters.com +1 646 223 6317; Reuters Messaging: jon.stempel.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
NEW YORK, May 7 (Reuters) - Lehman Brothers Holdings Inc is seeking court permission to restructure the balance sheet of Archstone-Smith Trust, cutting $5.2 billion of debt from an ill-timed leveraged buyout that contributed to its record bankruptcy.
The $22.2 billion takeover of the nation's second-largest real estate investment trust in 2007 had added hundreds of prime apartment buildings to Lehman's portfolio, but also saddled it with billions of dollars of new debt as the U.S. property market deteriorated.
Lehman owns 47 percent of Archstone, Barclays Plc and Bank of America Corp share another 47 percent, and the banks collectively invested $4.8 billion of equity into Archstone, a court filing shows.
Tishman Speyer Properties, a New York real estate firm, joined with Lehman in the 2007 buyout.
In the restructuring, Lehman wants to swap $5.2 billion of loans used to fund the buyout into preferred equity interests, which would be senior to existing preferred and common equity, according to court documents filed on Thursday.
It said the swap would reduce Archstone's interest payments by at least $150 million annually. Lehman also proposed to extend maturities on other financings, creating more time to pay off debts.
The proposal 'is the best solution to stabilize Archstone's balance sheet, minimize the need for additional owner capital infusions and preserve the debtors and their affiliates' substantial investment' in Archstone, wrote Shai Waisman, a Weil, Gotshal & Manges LLP partner who represents Lehman.
Waisman added that while new preferred equity holders would relinquish their secured debt positions, the absence of a swap would leave their chances of recovery 'prone to uncertainty if concerns regarding Archstone's balance sheet are not addressed in short order.'
The proposal requires approval by U.S. Bankruptcy Judge James Peck in Manhattan, and is subject to agreement by Barclays and Bank of America.
Barclays spokesman Brandon Ashcraft and Bank of America spokesman Bill Halldin declined to comment. Tishman Speyer did not immediately return a call seeking comment.
Anton Valukas, Lehman's court-appointed examiner, in a March report, cited Archstone as among a handful of real estate transactions that Lehman made at the top of the market, and which caused its balance sheet to grow too large.
'Because of the extraordinary size of the transaction,' Valukas wrote, 'it was clear from the beginning that the Archstone commitment would cause Lehman to exceed its risk appetite limits.'
Lehman's Sept. 15, 2008 bankruptcy is by far the largest in U.S. history. In March, it said creditors' claims should be reduced to $605 billion, and that allowed claims might ultimately decline to $260 billion.
The case is In re: Lehman Brothers Holdings Inc et al, U.S. Bankruptcy Court, Southern District of New York, No. 08-13555.
(Reporting by Caroline Humer and Jonathan Stempel; Editing by Tim Dobbyn and Carol Bishopric) Keywords: LEHMAN/ARCHSTONE (Caroline.Humer@thomsonreuters.com; Tel: 1-646-223-6181; jon.stempel@thomsonreuters.com +1 646 223 6317; Reuters Messaging: jon.stempel.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.