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Barclays' Defense in Lehman Brothers Estate Lawsuit

Barclays' Defense in Lehman Brothers Estate Lawsuit

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Filing by Barclays Capital against a lawsuit by Lehman Brothers' bankruptcy estate, arguing that the British firm didn't improperly pocket a windfall profit by secretly negotiating a discount on the collapsed firm's core operations.
Filing by Barclays Capital against a lawsuit by Lehman Brothers' bankruptcy estate, arguing that the British firm didn't improperly pocket a windfall profit by secretly negotiating a discount on the collapsed firm's core operations.

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Published by: DealBook on Jan 29, 2010
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11/18/2012

 
Hearing date: March 25, 2010Objections Date for Movants’ Rule 60Motions: January 29, 2010Objections Date for Motion by Barclays Capital Inc.to Enforce the Sale Order and Secure Delivery of AllUndelivered Assets: March 4, 2010
UNITED STATES BANKRUPTCY COURTSOUTHERN DISTRICT OF NEW YORK 
In reLEHMAN BROTHERS HOLDINGS INC.,
et al.
,Debtors.Chapter 11 Case No.08-13555 (JMP)(Jointly Administered)In reLEHMAN BROTHERS INC.,Debtor.Case No. 08-01420 (JMP)
MEMORANDUM OF BARCLAYS CAPITAL INC. IN OPPOSITION TO THE RULE 60MOTIONS AND IN SUPPORT OF MOTION OF BARCLAYS CAPITAL INC. TOENFORCE THE SALE ORDER AND SECURE DELIVERY OF ALL UNDELIVEREDASSETSBOIES, SCHILLER & FLEXNER LLP
575 Lexington Avenue New York, NY 10022Telephone: (212) 446-2300Facsimile: (212) 446-2350
 Attorneys for Barclays Capital Inc.
January29, 2010
 
TABLE OF CONTENTS
PRELIMINARY STATEMENT.................................................................................................1STATEMENT OF FACTS.......................................................................................................20A.Under Distressed Circumstances, Barclays Negotiated In Good Faith For TheAcquisition Of A Business With Assets And Liabilities Of Uncertain Values...............201.The APA Provided For Barclays To Acquire All Assets In The BusinessExcept Specifically Excluded Assets.................................................................212.The APA Provided That The Business Included Financial AssetsEstimated To Be Worth More Than Financial Liabilities —With NoRepresentation Or Warranty Of A “Wash.”.......................................................243.The APA’s Estimated Value Of The Long Positions May Have ReflectedAn Updating And Reduction From Stale Lehman Marks, ButWas Not A“Discount” From Fair Market Value..................................................................314.In Order To Ensure That It Kept The Business Intact, Barclays Agreed ToAssume A Series Of Compensation Obligations................................................355.Barclays Agreed To Assume An Obligation For Cure Amounts Only For Contracts That Barclays Chose To Assume Within 60 Days After Closing........38B.Before The Sale Was Approved, Barclays Publicly Announced Its ExpectationThat The Deal Would Generate A DayOne Acquisition Gain.......................................42C.On September 18, At The Insistence Of The New York Fed, Barclays Advanced$45 Billion In Cash To LBI In Exchange For Collateral That Was Supposed ToBe Worth $49.7 Billion.................................................................................................461.The Federal Reserve Requested The Repo Transaction, Not Barclays................482.In A Transaction That Was Fraught With Financial And Operational RisAnd Uncertainty,Barclays Received “Repo Collateral” That WasDifferentFromWhat It Had Been Promised......................................................503.The Repo Collateral Barclays Received Was Worth Significantly LessThan The Marks Indicated.................................................................................53D.The Uncertainties Over LBI’s Balance Sheet And The Assets Available To BeTransferred Increased Over The Course Of The Week, Requiring Changes To TheDescription Of LBI Assets Being Conveyed...................................................................56
 
ivE.The Purchased Assets Included LBI’s Exchange-Traded Derivatives AndAssociated Margin That Were Of Highly Uncertain Value And That Posed ASubstantial Risk Of Future Liabilities And Losses.........................................................62F.The Parties Amended The APA Before The Sale Hearing To Provide ProtectionTo The DTCC Regarding LBI’s Settlement Obligations................................................70G.The Court Approved The Sale After It Was Told There Were FurtheAmendments Being Made To The Contract And There Was No Time To Wait For Detailed Documentation And Appraisals.......................................................................721.Weil Gotshal Told The Court There Were “Major Changes” To TheTransaction And The APA Was Being Amended Through A Not YetCompleted Clarification Letter..........................................................................722.Weil Gotshal Told The Court That The Public Interest RequiredImmediate Approval Of The Sale And That It Was Not Possible To WaitFor “Ordered Reports, Appraisals, Physical Inventories, A Review of EachAnd Every Document Relating To The Transaction.........................................753.Certain Creditors Objected That There Was No Final Contract And ThatBarclays Was Getting A “Discount” And A “Fire Sale” Deal............................774.This Court Approved The Deal After Explaining That The AlternativeWould Be Disastrous.........................................................................................78H.The Movants Knew The Contractual Terms Of The Sale...............................................791.FromThe Plain Text Of The Clarification Letter, The Movants All KnewThat Barclays Was Acquiring The Entire Repo Collateral, The ClearanceBox Assets, The Exchange Traded Derivatives And Associated Margin,And $769 Million In 15c3 Type Assets..............................................................822.The Movants Knew That The Total Value Of The Purchased Assets WasUncertain, And That There Was No Agreed Valuation Cap Of $47.4Billion...............................................................................................................853.The Movants Knew The Repo Collateral Was InitiallySupposed To BeWorth Approximately $49.7 Billion, But Was In Fact Of Highly UncertainValue And Likely Worth Far Less Than That Amount.......................................914.The Movants Knew That The Clearance Box Assets Were Of UncertainValue —But Estimated To Be Worth Approximately $1.9 Billion....................945.The Movants Knew The Contract Provision Relating To The 15c3-3Account Obligated The Lehman Estates To Deliver Assets Worth $769Million..............................................................................................................96

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