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Sept. 16 (Bloomberg) -- Lehman Brothers Holdings Inc., the securities firm that filed for bankruptcy yesterday, canceled an auction of $852 million of high-yield, high-risk loans, according to investors who considered bidding on the debt.
Bids for the loans, some of which helped finance leveraged buyouts for First Data Corp. and TXU Corp., were due by 2 p.m. today in New York, said the investors, who declined to be identified because the auction was private.
The sale was scrapped as Barclays Plc moved closer to a bid for the bankrupt firm's broker-dealer unit. Leveraged loan prices tumbled near record lows in the past week as New York-based Lehman collapsed, stoking concern that other financial companies may fail. The firm has $7.1 billion of high-yield loans and bonds on its books, the bank said Sept. 10.
``Lehman is probably growing close to a sale of its brokerage business, which prompted the bank to cancel today's auction,'' said Louis Gargour, chief investment officer of LNG Capital, a London-based hedge fund. ``Lehman's leveraged loan book could prove integral to other parts of the business the bank is looking to sell, particularly the brokerage unit.''
Barclays, the U.K.'s third-biggest bank, struck a deal to acquire the U.S. trading and investment banking business of Lehman, a person with knowledge of the matter said. Trading in Lehman shares was halted by the New York Stock Exchange at 3:04 p.m. Barclays's agreement to buy the Lehman units may be announced as soon as this evening, the person said, declining to be identified because the talks are private.
Loan Losses
The price of the average actively traded leveraged loan has fallen from above face value in June 2007 to 86.64 cents on the dollar, compared with a low of 86.3 cents reached in February, according to Standard & Poor's LCD. Prices fell 1.64 cent in the past week.
The Markit LCDX, a benchmark credit-default swap index that banks and investors use to hedge against losses on leveraged loans fell 0.65 percentage point to a mid-price of 94.5 of face value, after dropping as much as 2 percentage points today, according to Goldman Sachs Group Inc. The index falls as credit risk increases.
Lehman spokesman Mark Lane didn't return a call seeking comment.
First Data, TXU
Lehman loans that were for sale include those from First Data, which was bought out last year by New York-based Kohlberg Kravis Roberts & Co., and TXU, now Energy Futures Holding Corp., purchased in 2007 by KKR and TPG Inc. of Fort Worth, Texas, the people said.
Lehman was also selling distressed loans made to Chicago- based Tribune Co., which billionaire investor Sam Zell took private last year, the investors said.
High-yield, or leveraged, loans are graded below Baa3 by Moody's Investors Service and below BBB- by S&P.
Barclays may use less than $2 billion of its own funds to buy Lehman's broker-dealer unit and get a cash injection from investors to help finance the business, a person familiar with the situation said earlier today. The London-based bank would take licenses, buildings and as many as 10,000 people who trade and underwrite securities and advise on acquisitions.
Source: http://www.bloomberg.com/apps/news?pid=20601087&sid=amAQinyujUSY&
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