The administrators of Lehman Brothers' U.K. unit are objecting to a plan by the collapsed U.S. investment bank to create an asset manager that would continue to oversee its illiquid assets post-bankruptcy.
In a formal objection to Lehman's plans on Monday, the U.K. administrators of Lehman Brothers International (Europe) said it was premature for Lehman to create the unit without providing more information about its reorganization and plans to repay creditors.
Last month, Lehman Brothers Holdings Inc
Lehman believes if it was forced to sell its assets now they would fetch less and that it could maximize returns to creditors if they are managed over time. LAMCO would be expected to manage some $57 billion in assets going forward and many of the 400 Lehman employees who currently manage the assets would also continue working for LAMCO, according to the plans.
Lehman's official committee of unsecured creditors backed the LAMCO plan in a court filing last week, saying it was atypical for a liquidating Chapter 11 bankruptcy, but would give the creditors an opportunity to efficiently increase the value of Lehman's property.
But the U.K. administrators said on Monday that, while they do believe the plan to create LAMCO could eventually result in an overall benefit to creditors they would object at an April 14 court hearing, largely over concerns about transparency, governance and lack of information about the plan given to creditors.
Units of Credit Suisse Group AG
The derivatives creditors said they were not conceptually opposed to LAMCO, but they were concerned the current proposal was not being negotiated as a true arms-length sale to a third party, but rather was an insider transaction that benefits Lehman's employees.
What is being proposed is a reorganization plan for Debtors' employees and management separate, apart, and ahead of the reorganization plan for creditors, they wrote.
SEARCH FOR PRISTINE PARTNER
Meanwhile, Lehman has been approaching possible partners to help it create the asset manger.
The creditors' committee said in court papers last week that it is working with Lehman to find an outside strategic partner to purchase an equity stake in LAMCO or form some other profitable relationship.
Lehman is seeking a pristine partner with a premier brand to help it build credibility, establish a brand and build the LAMCO asset manager business, according to Lehman documents describing LAMCO's business that were obtained by Reuters on Monday.
Given the current bankrupt status of Lehman, it is important to bring the immediate credibility of a proven operator to LAMCO in order to remove the bankruptcy taint, establish a great brand and aid in the sourcing of 3rd party asset management mandates, Lehman said in the presentation.
Under the plan, LAMCO would be 100 percent owned by Lehman and designed to benefit the company's creditors. Lehman has said it could make up to a $20 million cash equity contribution to the venture and supply other infrastructure necessary to operating the business.
Lehman is looking for an established partner with access to capital that would make LAMCO important to the strategy of its firm and not view it as a passive portfolio company, according to the presentation.
Lehman's unsecured creditors, which include, hedge funds, investors and counterparties, said LAMCO should be created quickly as market signals suggest the value of Lehman's asset manager to a strategic partner may be at its maximum level right now.
The opportunity to attract a third-party investor may be lost -- or substantially diminished -- by the time the Debtors (Lehman) emerge from chapter 11 protection, the committee wrote.
A Lehman spokeswoman was not immediately available on Monday.
The case is In re: Lehman Brothers Holdings Inc, U.S. Bankruptcy Court, Southern District of New York, No. 08-13555.
(Reporting by Emily Chasan; additional reporting by Paritosh Bansal; editing by Andre Grenon)