Collapsed investment bank Lehman Brothers has produced virtually $ 2bn from its investment in Formula A single automobile racing, offering it a 550% return, in accordance to new analysis.
It is good information for the creditors of the bank which went into Chapter eleven in September 2008. But though the return from F1 is turbo-charged it won’t even scratch the surface of the quantity owed by Lehman which comes to a total of close to $ 450bn.
There have been a lot of twists and turns to Lehman’s involvement with F1 which has its origins in 2001. This is when German media company Kirch borrowed $ 1.6bn from 3 banking institutions to acquire a 75% stake in F1’s former parent company SLEC. State-owned German financial institution BayernLB loaned $ 987.5m with Lehman and JP Morgan each and every offering $ 300m.
The loans had been secured on the stake in SLEC and when Kirch went into administration in 2002 the trio of banks enforced their protection. It gave Lehman a 14.2% stake in SLEC in line with the volume it loaned.
In 2006 the banking institutions sold their stakes to the private equity company CVC with Lehman receiving $ 209.3m which was much less than the loan it presented to Kirch. Even so, this was only a loss on paper as Lehman manufactured the wise selection to reinvest the money in F1. It also supplied $ 550m of a $ 2.9bn loan which was utilised to finance CVC’s acquisition. Lehman was paid curiosity on this loan, which has been refinanced a number of occasions since 2006, but it is not the place its largest gains have been created.
The reinvestment gave Lehman a 15.3% stake in F1’s existing parent business Delta Topco, making it the third-largest shareholder behind CVC and Kansas-primarily based asset management firm Waddell & Reed. However, 2 years soon after Lehman reinvested it went into Chapter 11 and CVC attempted to seize its F1 stake as Topco’s Content articles of Association give it the power to force any shareholder which gets insolvent to promote to it for a honest cost.
“In actuality, we are the only purchaser,” explained Nick Clarry, CVC’s United kingdom managing director, at the time. “We have made an offer to get Lehman’s shares in the past and could do so once again.”
Lehman objected to this on the grounds that US bankruptcy law would overrule its obligation to CVC. It added that its stake would be really worth much more if it was offered as component of a controlling curiosity in F1. CVC agreed and allowed it to move its shares and right to repayment of the debt from its bankrupt arm, Lehman Industrial Paper, into LBI Group, a newly-formed holding company containing the beneficial assets in Lehman’s portfolio.
LBI’s function is to make funds from its assets which is then employed to pay out Lehman’s creditors. This is an ongoing procedure and dissolving it entirely depends on settling the claims from creditors.
F1 contributed to its returns in May 2012 when Topco paid out an $ 850m dividend with $ 130.1m going to Lehman in line with its 15.3% stake. 5 months later Lehman cashed in yet again when it sold a 3% stake in F1 to the Teachers’ Retirement Method of Texas (TRS) for an estimated $ 200m.
Rounding off an currently-bumper year, in December 2012 Topco paid an additional dividend, which this time came to $ 1.2bn and was fueled with income from a latest debt refinancing. Lehman’s share of this was $ 148.8m bringing its payout tally to $ 478.9m.
In addition to that, Lehman nevertheless has its twelve.3% stake in F1 and current developments have shed light on the worth of it.
In excess of the past handful of years CVC has been planning an IPO of F1 on the Singapore stock exchange and in 2013, a source near to the organization advised Britain’s Guardian newspaper that it was targeting a $ 12bn marketplace capitalisation. This puts a value of about $ 1.5bn on Lehman’s F1 stake. It would give Lehman a total of $ 2bn in funds out and remaining value which comes to a return of 551.7%.
The massive query is when will Lehman promote its remaining shares and who will be the purchaser. Documents launched in the ongoing unwinding of the business state that “if, on June 30, 2014, [LBI Group] has not disposed of all of the Formula One assets, then [Lehman Business Paper] might, at any time thereafter demand that [LBI Group] pay out to [Lehman Commercial Paper] an amount equal to the honest value of the Formula One particular assets.”
In summary, the document states that to ensure the F1 stake raises funds for the bank’s creditors, LBI has committed to paying Lehman Business Paper an sum equal to the marketplace value of the shares if it has not sold them by thirty June this 12 months.
The timing of this deadline may possibly not be best as a cloud is currently hanging over F1. Subsequent month its chief executive Bernie Ecclestone is due to go on trial in Germany for paying portion of an alleged $ 44m bribe to steer the sale of F1 from the trio of banking institutions to CVC in 2006. He denies the expenses and recently won a connected situation in the Uk while an additional linked suit was thrown out of New York’s Supreme Court.