Lehman Brothers Plans To Come Out of Bankruptcy
Lehman Brothers was the biggest bankruptcy filing ever. Many think the company has been closed down, but it is actually planning to come out of bankruptcy this year.
The Lehman Brothers bankruptcy sent shock waves through the financial industry. Thought of as “to big to fail”, it did just that. When it filed for bankruptcy protection in September of 2008, it had assets of over $600 billion dollars, but many times that in debts. Its obligations stretched long and far through the financial industry world wide, and the failure nearly took down a host of other major players. The markets were tied up and fear had everyone wondering what would happen next.
Most people assume that Lehman Brothers filed a liquidation bankruptcy. This is incorrect. It actually filed for a reorganization option, better known as Chapter 11. The company immediately sold off a number of key assets to generate funds and pay off some of the debts it owed. The company, however, kept a huge number of long term assets that will be income generating and valuable for decades to come.
Lehman Brothers has now filed a reorganization plan that, if approved, will have it coming out of bankruptcy by the end of the year. The plan is ambitious. It calls for the repayment of all secured and administrative debts. Unsecured claims and guarantees will be paid pro-rata from a pool of cash. What about the warranty and share holders? They get nothing.
Now, let’s ask a very simple question. How do you think Lehman Brothers would do as a financial company after its implosion? Would you trust the company? I wouldn’t! Lehmans seems to realize this could be a problem. To resolve it, the company is doing what so many have done in the past. Yes, it is going to rebuild its credibility by…calling itself something else. The new name will be LAMCO.
So, what can we take from this story? Well, what we see is a huge financial institution surviving the biggest bankruptcy every while shareholders get the shaft. Ah, don’t you just love the financial system?