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?Urgent. Code name: Equinox? ? The Story of Lehman?s Bankruptcy

By Dan Slater

“We were a distraction to the Lehman people,” Weil Gotshal bankruptcy lawyer Lori Fife tells the WSJ. “It felt like it was just a fire drill.”

The front-pager, entitled “The Weekend That Wall Street Died,” documents, in play-by-play fashion, the events of the second weekend in September, the one that ended with Lehman filing for bankruptcy.

Here’s what happened: On the night of Thursday, Sept. 11, Weil Gotshal’s Harvey Miller secretly began cobbling together a bare bones bankruptcy filing. By Saturday morning, Lehman’s bankruptcy team had rolled into action. According to the WSJ, Miller, the firm’s bankruptcy head, sent an email to several partners. Lehman’s name didn’t appear in the email. Its subject line read: “Urgent. Code name: Equinox. Have desperate need for help on an emergency situation.”

The next day, Sunday, a senior Fed official reportedly asked Miller if Lehman was ready to file. “No,” Miller answered. He continued: “You need more of a plan to prepare to do this.” Lehman had tens of billions of dollars in derivative positions with countless parties. Unless these trades were unwound in an orderly way, it could shock all corners of the financial market. “This will cause financial Armageddon,” he reportedly said.

According to a second WSJ story, this chaos caused the destruction of as much as $75 billion in value. A study by advisory firm Alvarez & Marsal, which was hired by Lehman’s board just hours prior to its Sept. 14 bankruptcy filing, reveals that a less-hurried filing likely would have preserved tens of billions of dollars of value by enabling Lehman to sell some assets outside of bankruptcy protection, and would have given it time to try to unwind its derivatives portfolio.

Bryan Marsal, the co-CEO of the advisory firm who now serves as Lehman’s chief restructuring officer, told the WSJ: “While I have no position on whether or not the federal government should have provided further assistance to Lehman, once the decision was made not to provide further assistance, an orderly wind-down plan should have been pursued. It was an unconscionable waste of value.”

Full post as published by Law Blog - WSJ.com on December 29, 2008 (boomark / email).