Lehman Brothers Attempts to Convert Archstone REIT Deal Debt

According to Reuters, Lehman Brothers is continuing its efforts to convert some of the $5 billion-plus debt obligation from its 2007 leveraged buyout of Archstone Real Estate Investment Trust (Archstone REIT) into the equivalent of preferred stock and extend the repayment date on the balance of the debt.

As mentioned in an earlier commentary I wrote on the Lehman Brothers Bankruptcy Examiner’s Report and the Repo 105 issue, this REIT deal was a bad one for Lehman Brothers. Industry insiders such as UBS and other firms knew it overexposed Lehman’s balance sheet to the vagaries of the already precarious real estate market.

Most investors in Lehman Brothers Principal Protected Notes that were sold in the U.S. by firms such as UBS and Raymond James, and abroad by firms such as Citi and Credit Suisse, are looking to recover their losses through both claims against the sellers of these defective products and through mitigation efforts.

Claims against sellers include class action participation for smaller investors and FINRA arbitration for investors with more significant losses like those represented by our firm. Mitigation efforts by investors include efforts to recover a likely small portion of investors’ Lehman notes investment through either filing claims in the Lehman Brothers bankruptcy proceeding — for those willing to wait — or investigating possible sales of these notes on what now might be a now-emerging secondary market. Exploring the possibility of selling on a secondary market is for those who wish to recoup funds sooner than the bankruptcy timetable and are willing to recoup less than they might ultimately receive through the Lehman bankruptcy.

A cross-section of Vernon Litigation Group’s clients who have filed FINRA arbitration claims involving Lehman structured notes includes baby boomers, a teacher, a hospital employee, wealthy retirees, and a charitable foundation and reveals how aggressively and indiscriminately that firms such as UBS were encouraging their financial advisors to recommend Lehman Structured notes to their client base. Vernon Litigation Group filed a $1 million arbitration claim against UBS on behalf of an investor in February and an $800,000 claim against UBS on behalf of another investor in March.

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