London: Bondholders of the beleaguered Lehman Brothers may lose $110 billion (Rs5 trillion) due to the decline in the asset values of the fourth-largest investment bank in the US, media reports say.
The value of the bonds of Lehman Brothers saw a major fall after the investment bank filed for bankruptcy protection, the Financial Times report said adding, “Further losses on its derivatives positions, which are still being unwound, could leave even less on the table for bond investors.”
According to the FT report, Loomis Sayles vice-chairman Dan Fuss has said, “I don’t know how this will play out for bondholders, but I doubt if its going to be good.”
Loomis Sayles has a small holding in Lehman bonds.
The losses would have a far-reaching effect on ordinary investors, FT said as Lehman bonds were widely held by investors such as pension funds and mutual funds.
Meanwhile, those who sold protection against a default or Lehman bankruptcy will possibly recover 18 cents on the dollar when the contracts settle in a complicated auction 10 October, the report added.
Before Lehman filed for bankruptcy, its $110-billion of senior bonds were quoted around 95 cents on the dollar. Bond prices then plunged to 35 cents a week ago. They are now trading at about 18 cents to the dollar.
Quoting Kathleen Shanley of Gimme Credit, an analyst from a credit research firm, FT said, “Lehman bonds are trading in the high teens, which reflects the bankruptcy filing, in which a large number of creditors are competing for a shrinking pool of assets of uncertain value”.
Last week, Lehman inked a deal to sell the North American investment banking business to Barclays for $1.75 billion. “Even though approval of the deal was rushed through court, lawyers for Lehman Brothers said asset values then dropped to $47.4 billion from about $70 billion,” the report said.
In its bankruptcy filing, Lehman listed total debts of $613 billion, making it the largest ever US bankruptcy with $128 billion in debt securities, including $110.69 billion unsecured debt, $17.6 billion in unsecured, subordinated obligations, the media report said.
Further, FT quoted creditors as saying that Lehman can be involved in the government’s plan to set up a $700-billion fund to buy distressed mortgage assets.
So far, there had been no formal discussions among the creditors about this, said a person involved in the bankruptcy case. The facility could boost recoveries for various creditors.