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Winding-up of US bank forces sale of assets that could open doors to new investors in the sport
The collapsed US bank Lehman Brothers has committed itself to cashing in its stake in Formula One motor racing within two years, according to documents released as part of the ongoing unwinding of the company. The stake is expected to yield a $1.5bn (Â£950m) payout to Lehman’s creditors, who are owed $450bn.
Lehman’s estate has emerged from bankruptcy protection and confirmed that its first payment to creditors, which include hedge funds, money managers and businesses, will be made in April. It is expected to exceed $10bn and in total creditors will get around $65bn. Other assets that could be sold are a hotel in Hawaii, a Rockies ski resort and a Manhattan boutique hotel.
Lehman is the second-biggest shareholder in Formula One’s Jersey-based holding company, Delta Topco, which is majority-owned by private equity firm CVC. Lehman owns a 15.3% stake and a senior Formula One source says that Topco is worth “more than $10bn”.
A sale could open the door to new investors in Formula One, which has been a subject of much discussion in the past year. In April, the media group News Corporation said it was considering a bid with the Italian firm Exor. Abu Dhabi sovereign wealth fund Mubadala and the world’s richest man, Carlos Slim, were also believed to be interested and in November Formula One’s chief executive, Bernie Ecclestone, said he had been advised to float the business in Singapore rather than sell it.
Lehman’s $639bn bankruptcy remains the largest in US history and marked the demise of a company that had survived the Civil War and the Depression.
Lehman said it had already raised $30bn since its 2008 collapse. It has sold its stake in the Manhattan property known as the International Toy Centre, which once housed toy makers from around the world, and Whistler Blackcomb, a Canadian ski resort that was one of the venues for the Vancouver Winter Olympics in 2010. The bank says it stands to raise $35bn more by selling the rest of its assets, which include the 404-room Ritz Carlton Kapalua in Hawaii and the Moonlight Basin in Montana, a luxurious ski, golf and spa resort.
Lehman first became a Formula One shareholder in 2002 when it took over a stake held by German media company Kirch after it defaulted on a loan from the bank. Lehman sold this to CVC in 2006, but then reinvested and provided $550m of a $2.8bn loan which the private equity firm used to buy the sport.
When Lehman went bust in September 2008, CVC attempted to seize its Formula One shares, as Topco’s articles of association give it the power to force any shareholder which becomes insolvent to sell for a fair price. Lehman objected on the grounds that its stake would be worth more if it was sold as part of a controlling interest in the sport.
CVC agreed and allowed it to move its shares and right to repayment of the debt from its bankrupt arm Lehman Commercial Paper into LBI Group, a new holding company containing valuable assets.
LBI’s purpose is to generate cash from these assets and pay Lehman’s creditors. This is continuing and dissolving the firm completely depends on settling the claims from creditors.
To ensure that the Formula One stake raises funds for Lehman’s creditors, LBI has committed itself to paying Lehman Commercial Paper an amount equal to the market value of the shares if it has not sold them within two years.
The documents state that “if, on June 30, 2014, [LBI Group] has not disposed of all of the Formula One assets, then [Lehman Commercial Paper] may, at any time thereafter demand that [LBI Group] pay to [Lehman Commercial Paper] an amount equal to the fair value of the Formula One assets.”
Topco’s shareholders are bound by an agreement which gives CVC a veto over the sale of any stakes in the company. However, when it requested the transfer of the Formula One shares to LBI, Lehman argued that US bankruptcy law would overrule its obligation to CVC. This claim was never tested in court, so unless Lehman uses it again and is successful, it means CVC still holds the keys as to who will be the future owner of Formula One.