The Work

January 24, 2012 8:07 PM

As Lehman's Bankruptcy Bill Grows, Four Firms Advise on Estate's Acquisition of Archstone Stake

Posted by Brian Baxter

Even as fresh regulatory filings showed fees for outside legal, financial, and accounting advisers in the Lehman Brothers bankruptcy hitting $1.5 billion in December, the defunct investment bank on Tuesday appeared to snatch away a $1.3 billion stake in apartment owner Archstone from Sam Zell's Equity Residential.

The Am Law Daily reported in December on the three firms advising on Equity Residential's offer to purchase a 26.5 percent stake in the real estate investment trust from Bank of America and Barclays. That proposed deal came four years after Lehman teamed with property developer Tishman Speyer to take Archstone private in a $22.2 billion leveraged buyout, with BoA and Barclays providing some of the financing.

When Lehman filed the largest Chapter 11 case in U.S. history in September 2008, Barclays acquired most of the investment bank's North American assets in a fire sale. Lehman retained a 47 percent ownership stake in suburban Denver-based Archstone, which owns more than 425 communities and nearly 75,000 apartments throughout the United States and Europe; the remaining 53 percent is split between Barclays and BoA.

The two banks have quarreled with Lehman over Archstone's fate, and last month chose to sell half of their holdings to Equity Residential after failing to agree with the Lehman estate on how to exit their joint investment in Archstone.

Lehman sued Barclays and BoA last month over the planned sale, successfully arguing in bankruptcy court that it had the right to match Equity Residential's offer and buy back the stake to maximize its efforts to repay creditors. Lehman's estate wants Archstone as part of a $65 billion liquidation plan to exit Chapter 11 that was approved by U.S. bankruptcy judge James Peck in December.

Weil, Gotshal & Manges, which in November successfully defended Archstone in defeating $100 million in arbitration claims brought by aggrieved investors, took the lead advising Lehman on the increase of its stake in Archstone through real estate cochair W. Michael Bond and private equity partner Kyle Krpata. An SEC filing by Lehman shows that it was also advised by bankruptcy partner Paul De Filippo of New York’s Wollmuth Maher & Deutsch.

Another SEC filing states that Lehman purchased the Archstone stake from BoA and Barclays "with cash proceeds from its estate, with the approval of its Board of Directors, the [U.S.] Bankruptcy Court for the Southern District of New York, and the unsecured creditors’ committee in Lehman’s bankruptcy case."

The SEC filings confirming Lehman's increase of its stake in Archstone to 73.5 percent came just two days after the bankrupt financial services giant released its monthly operating report for December.

That report reveals that Lehman's bankruptcy bill for professional fees and expenses owed to its myriad outside advisers has topped the $1.5 billion mark. Leading the way on the legal side is the company's lead bankruptcy counsel from Weil, which billed for nearly $8.5 million in December. That brings the firm's total tab in the case to more than $375 million. 

Wollmuth Maher, special derivatives counsel to Lehman, billed for $228,000 in December to bring its total bill in the case to almost $1.6 million. December saw other top legal billers for debtor's side work include special conflicts counsel Curtis, Mallet-Prevost, Colt & Mosle at $4 million ($42.5 million total) and special Asian and domestic litigation counsel Jones Day at $3.3 million ($61.2 million total).

Milbank, Tweed, Hadley & McCloy, lead counsel to Lehman's official committee of unsecured creditors, billed $10.3 million in December to bring its total haul in the case to nearly $133.7 million. Quinn Emanuel Urquhart & Sullivan, special conflicts counsel to creditors, billed the debtor's estate for $2.8 million in December ($26.1 million total).

Just as the bankruptcy bills go on, the battle over Archstone isn't over yet.

Hogan Lovells, which advised the REIT on its LBO back in 2007, is now representing Equity Residential on its efforts to buy into the apartment owner. Chicago-based Equity Residential, which is also a REIT, maintains in its own SEC filings that within the next month it can "exercise its right to acquire all other interests held" by BoA and Barclays in Archstone for $1.3 billion. Reuters reports that if Equity Residential gains control of that final 26.5 percent stake in Archstone, it could force Lehman to sell it back some assets under a 2010 agreement between all of the REIT's stakeholders.

Simpson Thacher & Bartlett corporate partner Patrick Naughton and Peter Pantaleo, head of the firm's bankruptcy practice, are leading a team from the firm advising Barclays in connection with the sale of half of its Archstone stake to Lehman. Kaye Scholer corporate partner Mark Kingsley is leading a team from his firm representing BoA, which also was advised by its assistant general counsel Ileana Stone.


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