Lehman Brothers has been an important player in European leveraged finance – a top arranging bank of larger deals and innovative transactions in particular. The lack of big ticket LBO deal flow in 2008 however meant it had been relatively marginal ahead of last week’s collapse with just two facilities in the market.
One is a €900m facility in syndication, backing the buyout of French engineering group
The Converteam deal remains in general syndication and at the end of last week the other banks associated with the deal said that given the strength of the book they expected the process to continue. Alongside Lehman Brothers, mandated lead arrangers are HSBC, Natixis, RBS and SG. General syndication follows a joint lead arranger phase.
On the €1.275bn acquisition loan for leveraged German telecoms group freenet AG’s takeover of Debitel, Lehman Brothers is an MLA alongside Deutsche Bank, JPMorgan, RBS, UBS and UniCredit (HVB). That deal has not yet formally launched to syndication.
How the facility continues is now dependent on the attitude of the other banks and the specifics of the syndicate agreement. Although there is no compulsion, the remaining banks may agree to fund the deal between themselves and continue as normal; that Converteam’s facility has progressed so far should support this eventuality.
As yet unknown is the attitude of Lehman’s administrator. The bank’s funded commitments potentially represent assets to the administrator and as such co-arrangers will have to proceed cautiously. The administrator has made it clear that their priority will be to minimise their liability rather than support the success of outstanding transactions.
In other Lehman led loans, institutions are already stepping up to fill vacated roles. Lloyds TSB has taken over the agency roll on the €900m facilities backing the buyout of Firth Rixson, which closed at the end of last year. Lehman Brothers was bookrunner across both the senior and mezzanine tranches, GE Commercial Finance was bookrunner on the senior piece while Lloyds TSB was mandated lead arranger on the mezzanine debt.
Another concern for many will be the potential of a liquidation of Lehman’s loans portfolio and the Freedom CLO, which contains a US$2.8bn portfolio of 66 leveraged loans.
A fire sale could further suppress prices in an already hard hit secondary market, not only driving down prices but forcing the rest of the market to mark down assets.