Lehman Brothers Holdings Inc. is scheduled to appear before Judge James Peck of the U.S. Bankruptcy Court on Wednesday in Manhattan in order to gain permission to insert $950 million into their subsidiary Aurora Bank FSB, based in Delaware, which has been struggling to survive.
Lehman’s is the largest bankruptcy case to this time, and was the fourth-largest investment bank in America at the time they filed for bankruptcy on September 15, 2008.
It’s hard to tell what Lehman’s will end up looking like, or the size it will be once the bankruptcy process is completed, as they’ve been winding down numerous assets during this period of time, and they seem to have a ways to go before it’s all over.
For now this has stabilized Lehman’s business, as they continue to collect money from its creditors, which has added billions to the bankruptcy estate. Again, this has changed Lehman’s forever, and it’ll be a totally different company when it emerges from the bankruptcy proceedings.
Anyway, back to the Aurora Bank situation. A review of court papers from Lehman show that initially $450 million of the $950 million request to pump funds into Aurora will target their liquidity weakness, and will help strengthen that problem. The other $500 million will be used for short-term financing.
The way it’ll work is the $450 million will be used to acquire a bundled mortgages from commercial and residential loans, which Aurora will eventually buy back from Lehman’s at some time in the future – assuming they rebound and get healthy enough to do it. But that’s the reasoning behind the request.
For the $500 million, that will be a bridge loan which will be secured by an advance based on the bank’s receivables connected to Aurora’s servicing unit.
According to Lehman, Aurora has deposit obligations coming due in August, and if the company can’t meet them, the possibility of being seized by federal banking regulators is a real probability, and so the push to get approval to pump $950 million into the Aurora.
