Lehman Bros. Holdings Downgraded To ‘Selective Default’
-Contributed by a blogger
Other Lehman Entities To ‘BB-’ Or ‘R’
NEW YORK Sept. 15, 2008–Standard & Poor’s Ratings Services said today that it lowered its long-term
counterparty credit rating on Lehman Brothers Holdings Inc. (Lehman) to ‘SD’ (selective default, meaning payments
may not be made on some financial obligations), from ‘A’. We also removed the rating from CreditWatch, where it
had been placed with developing implications on Sept. 12, 2008.
The downgrade followed our lowering of Lehman’s preferred stock issues to ‘D’ from ‘BBB+’. At the same time, we
lowered Lehman’s senior unsecured debt issues to ‘CCC-’ from ‘A’, and its subordinated debt issues to ‘C’ from ‘A-’.
The issue ratings remain on CreditWatch where they were placed on Sept. 12, 2008, but we have changed the
implications to negative from developing.
Meanwhile, we lowered the long-term counterparty credit and issue ratings on most of Lehman’s other subsidiaries
to ‘BB-’ (see list below). These ratings remain on CreditWatch with developing implications, which means that we
could raise, affirm, or lower the ratings.
In addition, we lowered the long-term counterparty ratings on Lehman Brothers International (Europe) and Lehman
Brothers Holdings PLC to ‘R’, signifying that regulators have taken over these entities, from ‘A’. We removed the
ratings from CreditWatch, where they had been placed with developing implications on Sept. 12, 2008.
“These rating actions follow the announcement that Lehman Brothers Holdings Inc., the parent/holding company of
the Lehman Brothers group, intends to file for Chapter 11 bankruptcy protection,” said Standard & Poor’s credit
analyst Scott Sprinzen. “No other Lehman subsidiary has been included in the filing. At this time, it is not clear
whether Lehman will default on its holding company senior and subordinated debt obligations. But we assume
Lehman is highly likely to discontinue payments on its hybrid capital issues.”
It is also uncertain whether the Chapter 11 proceedings will ultimately include some of Lehman’s affiliates in the
U.S.and in other countries or whether regulators will take over those entities. Ten securities firms and banks
reportedly have access to a $70 billion “club” borrowing facility, which should help to stabilize the financial markets,
while the Federal Reserve has broadened the collateral eligible to be used under the Primary Dealer Credit Facility.
“Standard & Poor’s will continue to monitor the situation closely and make additional rating changes as further
information about Lehman’s reorganization becomes available,” said Mr. Sprinzen.
Lehman’s Chapter 11 filing followed a precipitous decline in confidence on the part of creditors, counterparties, and
clients, with severe ramifications for its ability to fund its operations. This faltering confidence is attributable, in part,
to the company’s large holdings of commercial real estate, and residential mortgages and mortgage-backed
securities–and uncertainty regarding their value–which therefore served as a magnet for negative market sentiment
in the current difficult environment.
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Tim Ramsey