LEH Bonds

Sep 15, 2008 2:40 am

So what happens to LEH bonds that a client has?????

Sep 15, 2008 3:08 am

Grab your ankles.  Is this really a serious question?

Sep 15, 2008 1:51 pm

We are so screwed.  What to do for those who didn’t already get out of the bonds?   I had a talk with some of my clients  who hold/held Lehman bonds.  Some of them decided to sell and take a loss against cap gains, but a couple of them refused to sell because they had held the bonds for years and were a 7% coupon. 

    Now with AIG and WM the next on the block ....I feel sick.  This is much worse than previous melt downs in the market and I wonder where is a safe place anymore.  Even fixed annuities seem to be suspect and money market funds are possibly in trouble too.   Treasuries I guess.
Sep 15, 2008 2:23 pm

Bankruptcy judge will determined whether LEH is dead or a reorg is pallatable.

  Don't request bids yet.
Sep 15, 2008 2:27 pm

I had a client come in this moring to liquidate a John Hancock annuity.  He still has a couple of months before surrender is out, so we decided to move to a mmkt.  I asked JH what the interest was and they gave me a negative number…again a negative mmkt rate.  Yep the customer, the advisor got screwed on the Leh bonds.  I looked back at the values from Friday, and most where in the high 80’s…and today if you tried to liquidate you would get 30 or less…Luckily none of my Leh bond holders will starve, but makes me sick at my stomach on these calls. 

Sep 15, 2008 2:29 pm

That is the position I’ve taken with my clients. We’re down, we’re not getting any interest and we need to wait until all the panic selling moves through the bonds.

Sep 15, 2008 2:41 pm

Yes, bspears.  This is basically my position too.  The company is in a reorganization bankrupcy and is liquidating some assets.  Hopefully (praying) the company will stabilzie and we can sell at a better than 30 rate. 

  Seriously earning our money today folks.  I also feel sick to my stomach.
Sep 15, 2008 4:53 pm

I had to sell a Lehman Bros. bank CD back when IndyMac went down…reviewed my accounts and discovered one with $200K in LEH CDs.  How can this happen?  Sloppiness on my part…this is a multiple seven-figure account so if I’m not paying attention, it’s not hard to double up at a bank.  Thankfully, I got out at par plus interest and was actually able to go into another CD at about 20 bps better (CD sold had less than 3 months to go…new CD was 2 years).

  Crisis averted...whew...   Thankfully, that was my entire exposure (except for possible mutual fund holdings) in Lehman Brothers.  I wonder what Yolanda Holtzee (sp?) is doing today...
Sep 15, 2008 4:57 pm

My exposure is only 5 accts, total 140k.  I sent in for bids on all the LEH bonds and had two come back no bids, and the highest was 18.67.  So hopefully waiting will be the right thing to do.

Sep 15, 2008 4:58 pm

I am guessing that the “sum of the parts” may add up to something meaningful for the bond holders (obviously less than PAR, but they should get some meaningful principle back).  It’s likely going to take months, though.

Sep 15, 2008 6:18 pm

My total exposure is 6 accounts with 102K with the largest holding being 30K.  Still not good.  The best bid I got was 30 trading flat.

  I checked with some of my larger holdings in income type funds for exposure on the bond side and it doesn't seem too bad.  The hits we are taking on the bank stocks in general are continuing in the funds.    I guess we hold on and hope the bond holders can at least get some of their money back.
Sep 15, 2008 6:48 pm

BL, our guys are telling us the bonds could get 60 cents on the dollar with the asset sales. I take that with a major grain of salt as Lehman's own accountants couldn't put a number on the assets. Still, those assets are worth something and more than likely something more than the 30 now bid.

Good luck!

Sep 15, 2008 8:51 pm


BL, our guys are telling us the bonds could get 60 cents on the dollar with the asset sales. I take that with a major grain of salt as Lehman's own accountants couldn't put a number on the assets. Still, those assets are worth something and more than likely something more than the 30 now bid.

Good luck!

[/quote]   Kind of what I was thinking.... 60.  Told my clients we should just wait and keep pricing and if we hit 60 sell.  A 40% loss is better than a 70% loss.    Thankfully, I had pretty much diversified my clients bond holdings so the worst exposure is 30K in a 700K portfolio.     Checked with FKINX and they have zero Lehman exposure......whew!!
Sep 15, 2008 9:06 pm

Ok folks–for those of you that haven’t been through this before–on LEH bonds you will really have to wait a year or two before your clients get any money on their bonds.  It could be as high as 60 cents on the dollar and maybe as low as 30 cents on the dollar.  You can try and sell out the asset. 

  That is all there is to this!  I know you might not like having that conversation with your client but you have too!  Good Luck!  I know it sucks!
Sep 15, 2008 9:37 pm

only 15k in Lehman but 3.4 mill in Sunamerica VAs. I’m so pissed at that company it’s not even funny. They better not go bankrupt!!

Sep 15, 2008 10:32 pm

Roadhard is correct.

  I just wanted to say one thing about the Lehman bonds. If you have the LEH bonds with a death put, most likely your bonds are SENIOR unsecured debt. (Please verify this with your Fixed Income department. They should be able to send you a description page for your cusip on Bloomberg which tells you this.) In a liquidation, Senior bondholders are going to see money before the subordinated Lehman debt.   Now, the big question is: what are Lehman assets worth in order to figure out what you actually will receive.
Sep 16, 2008 4:33 pm

Any idea about the main street natural gas bonds by lehman? Recovery rate? Are they considered senior /subordinated? Will a Barclay’s deal mean anything to those bonds?

Sep 16, 2008 5:18 pm

Mainstreet gas bonds? Pray! The future is uncertain, but there may be hope.

  The commodities subsidiary did not declare bankruptcy. However,  the bond offering raised 700 million unsecured dollars that unsecured creditors will surely go after. I wouldn't count on that January 09 first coupon. There is nothing beyond the discount on the gas that will keep municipalities buying gas from Lehman. The good news is, for now, Lehman commodities is still making deliveries. Barclays could be a god send. Still, no guarantee that they take the commodities unit or this deal.   The bonds are priced at about the same level as other Lehman senior debt.   Good luck!  
Sep 16, 2008 6:50 pm

only 15k in Lehman but 3.4 mill in Sunamerica VAs. I’m so pissed at that company it’s not even funny. They better not go bankrupt!!

  I keep hearing this, and someone please correct me if I'm wrong, but if you own a SunAmerica VA and AIG goes BK, nothing happens to your SunAmerica VA.  They are separate legal entities.   Smith Barney wouldn't go bankrupt if Citi did.  Just like Lehman Bank didn't go bankrupt when LEH did.  They are subisidaries.  They have different balance sheets.  They are their own companies.  They are just companies owned by a parent company.  So fine, be pissed at AIG if you own AIG stock.  Don't be pissed at the kids because the father may be going out of business. 
Sep 16, 2008 8:02 pm

thanks bondguy.

Sep 16, 2008 9:14 pm

if barclays buys,though—bonds are ok?

Sep 16, 2008 9:22 pm

Barclays is paying 2 billion for a unit of Lehman… I didn’t see anything saying they were taking on Lehman debt.  I think the best possible scenario is that the 2 billion goes toward paying off creditors which I imagine is the case. And if your wondering, 2 Billion is just a drop of water in a 5 gallon bucket.

Sep 16, 2008 9:25 pm

not sure…looks like if barclays buys lbcs{lehman brothers commodity services/the commodity arm}then bonds are ok. But Barclays is obviously cherry picking…also cannot find any info on lbcs and it is not  rated…the bonds themselves are B3/CCC- currently Moody/S&P}so cant say…as bond guy said …all we can really do is PRAY!!! …any else have any ideas?

Sep 16, 2008 9:40 pm

from WSJ: “In a twist, Lehman’s much-lamented Chapter 11 bankruptcy filing may have increased the chances that the capital markets business would be salvaged in a sale, according to a person close to the deal”

Sep 18, 2008 1:36 am

Of course you are right.  Also, as you know, the subs are separate accounts and not company assets.  I know all the blah blah about riders etc. but the annuity is not like owning a leh bond or aig etc. etc.  Fluctuation or loss is not the same thing as Zero or bankrupt.  It sucks if accounts are down but not nearly as much as accounts (read individual securities) at ZERO.

Oct 26, 2008 3:54 pm

I came across a source that is buying LEH securities in private transactions at a discount. contact me if you want more information. Thanks