Cash Management

As Lehman Teetered, Some Took Precautions

At least two Lehman borrowers report that they accessed their credit facilities for immediate liquidity, even though there wasn't an immediate need.
Sarah JohnsonSeptember 16, 2008

Concerned about Lehman Brothers’ future, some of its corporate borrowers last week drew down on their credit facilities to ensure they would continue to have access to capital.

As news circulated Monday that the investment bank had filed for bankruptcy protection, at least two companies came forward to distance themselves from the negative reports, while showing that they have taken steps to make sure Lehman’s collapse won’t affect their own ability to get cash.

FairPoint Communications, a Charlotte, N.C., telecommunications company, for example, announced that it had borrowed $200 million from its facilities to preserve its access to capital late last week. Lehman accounted for 30 percent of those loan commitments.

The transactions involved draining the remaining half of FairPoint’s $200 million delayed draw term loan facility, as well as half of a $200 million revolving credit facility. “The company believes that these actions were necessary to preserve its availability to capital due to Lehman Brothers’ level of participation in the company’s debt facilities and the uncertainty surrounding both that firm and the financial markets in general,” FairPoint said in a regulatory filing.

The borrowings give FairPoint “ample” liquidity over the next several months for projects it already had underway, including transitioning the company to a new IT system and fully taking over operations it had acquired from Verizon.

Likewise, Jarden Corp. announced on Monday that it had decided to partially draw down on its credit revolver — 10 percent of which had been provided by Lehman. However, Jarden says the company has no immediate need for cash. The consumer product company — which provides consumer products under brands like Crock-Pot, Sunbeam, and Coleman — also plans to replace Lehman as the administrator of its credit facilities.

“Our early action and contingency planning is designed to protect our business from the impact of macro events such as the recent developments in the financial services sector,” said Martin Franklin, Jarden’s CEO.

4 Powerful Communication Strategies for Your Next Board Meeting