Financial Times: Lehman bondholders could lose $120bn [View All]

Lehman bondholders could lose $120bn
By Nicole Bullock and Aline van Duyn in New York

Published: September 22 2008 19:19 | Last updated: September 22 2008 19:19


Investors owning Lehman Brothers bonds face potential losses of close to $120bn, reflecting the sharp reductions in the value of assets that are likely to be left to be paid out to creditors.

In the week since Lehman Brothers, the fourth largest investment bank in the US, filed for bankruptcy, the value of its bonds have plummeted.

Further losses on its derivatives positions, which are still being unwound, could leave even less on the table for bond investors, according to traders.

“I don’t know how this will play out for bondholders, but I doubt if it’s going to be good,” said Dan Fuss, vice-chairman of Loomis Sayles, which has a small holding of Lehman bonds. “That’s what the market tells you and it tells you that so strongly.”

Lehman bonds were widely held by investors such as pension funds and mutual funds. This means the losses will have a far-reaching effect on ordinary investors, and the damage from Lehman Brothers has contributed to an unwillingness by investors to take on credit risk.

Just one week before Lehman filed for bankruptcy, its $110bn of senior bonds were quoted close to 95 cents on the dollar. Bond prices then plunged to 35 cents a week ago when the investment bank failed to find a white knight. They are now trading at about 18 cents to the dollar. ......(more)

The complete piece is at: http://www.ft.com/cms/s/0/d9d096c4-88ce-11dd-a179-0000779fd18c.html