Master Agreement Termination Process - Frequently Asked Questions

06/03/09

This FAQ covers the termination of master agreements by LBIE counterparties and relates largely to derivatives and financing master agreement types such as ISDA (derivatives), GMRA (Repo) and GMSLA and OSLA (Stock Loan), although other types of agreement and variations to these agreements do exist.

This FAQ is for counterparties either raising queries about submitted terminations or seeking guidance about how to terminate their master agreement with LBIE.

1) I have not yet terminated my derivatives and/or financing transactions with LBIE. What should I do?

Whether you have a right to terminate depends on the terms of your agreement with LBIE. A right to terminate is likely to have arisen as a result of LBIE's administration. It is up to you decide whether to exercise this right. However, LBIE may be entitled to take enforcement action against any counterparties that do not terminate the transactions and fail to perform their obligations under them.

2) I believe that my derivatives and/or financing transactions automatically terminated following the appointment of the Administrators.

In many cases, LBIE's administration will have caused outstanding derivatives transactions to have terminated automatically. If any transactions you entered into with LBIE have terminated in this way, you will probably be obliged, under the agreement governing them, to determine the amount that has becomes payable as a result (the "close-out amount") and provide LBIE with a statement setting out details of your calculations (a "valuation statement"). If so, the valuation statement should be provided as soon as possible.

3) I am ready to terminate, what should I do next?

Terminations must be communicated in accordance with the master agreement with Lehman Brothers International (Europe) (LBIE) and in the form dictated by that agreement. The master agreement or confirmations governing the transactions is likely to require you to deliver a termination notice to LBIE. You should check with your legal advisers what formalities are required.

4) What is the postal address for sending early termination notices ("terminations")/close-out valuation statements ("close-outs") to LBIE?

Attention: Huw Merriman

Lehman Brothers International (Europe)
25 Bank Street
London E14 5LE
England UK

Please note that the above address is for terminations with Lehman Brothers International (Europe) only, terminations of agreements with other Lehman Brothers' entities will not be valid unless served on those entities (or in accordance with the terms of the agreement).

5) I have submitted a termination /close-out but to another Lehman Brothers' entity, will it be valid?

Please send any termination correspondence regarding LBIE to the above address, otherwise we cannot confirm it's status, validity or whether it will be processed.

6) Can you confirm receipt of my termination?

On receipt of termination correspondence, the Administrators will reply with guidance on how to make payments to LBIE.  This letter constitutes acknowledgement of your correspondence, this does not mean your correspondence has been accepted as a valid notice of termination by us. Nor will payments made to LBIE under the aforementioned termination be taken as agreement of the completeness, accuracy or valuation of trades under the notice. All such items will be discussed and agreed with you over time once the LBIE reconciliation and valuation exercises are complete. We will inform you when this is the case.

7) What happens once I have delivered my termination notice?

In most cases you will be required to provide LBIE with a valuation statement stating the close-out amount and containing details of your calculation. This should be provided as soon as possible.

8) I have terminated my derivatives and/or /financing transactions with LBIE but have not yet delivered a valuation statement.

In most cases you will be required to deliver a valuation statement as soon as reasonably practicable after the termination date. A failure to do so will be a breach of contract and may call into question the validity of any valuation you subsequently undertake. If you fail to provide a valuation statement when required to do so, LBIE may make its own determination of the amount in question and, if the amount is due to LBIE, is likely to be entitled to commence legal proceedings to recover it, together with interest from the termination date. If you are unsure how to complete your valuation statement, then see our new valuations website (below).

9) How do I complete a valuation statement?

The terms of your agreement with LBIE will explain what information is required. Please provide any supplementary reference information you can, to enable us to validate your close-out. Such information will enable the Administrators to more efficiently reconcile the trade details under the master agreement and substantiate any claim you may have or any amount payable by you to LBIE.

To assist with the completion, LBIE has designed a website which will allow you to input the details of your derivatives transactions, valuations and valuation methodology. The website is designed to be compatible with the requirements of a standard ISDA Master Agreement or Rahmenvertrag Master Agreement. The use of this website is encouraged as it will facilitate the handling of claims and reduce the likelihood of LBIE having to revert to you with requests for further information.

If you wish to find out more about what supplementary information you can provide or wish receive instructions and a log-on for website access please email: uk.terminationnoticesqueries@lehman.com

10) If I have completed a valuation statement online, am I required to prepare a version in paper format as well?

Provided that an online valuation statement is completed in full, you do not need to provide a hard copy statement.

11) I cannot provide a valuation statement because I cannot find values for certain derivative transactions.

If you are unable to value a transaction, you should contact LBIE at uk.valuationstatements@lehman.com to discuss the matter. The valuation methodology will depend on the particular transaction and the agreement which governs your transaction but you may wish to contact the following information providers to ascertain if assistance can be provided:

Market Data and Price Source Providers:

• Bloomberg (www.bloomberg.com)
• GlobeOp Financial Services(http://www.globeop.com/)
• INTEX(http://intex.com/main/)
• Mark-It Partners(http://www.mark-it.com/information/home.html)
• Reuters(http://uk.reuters.com)
• SuperDerivatives(http://www.superderivatives.com/)
• Reference Dealers and Exchanges
  
  
  
  
• Leading dealers in the relevant market may provide you with quotations of relevant rates or prices
• The following Exchanges may provide you with trading services, market data, pricing and other financial information
  • Deutsche Borse Group (http://deutsche-boerse.com/)
  • Hong Kong SAR Stock Exchange (http://www.hkex.com.hk/index.htm)
  • London Stock Exchange (http://www.londonstockexchange.com/)
  • NYSE Euronext (http://www.nyse.com/)
  • Tokyo Stock Exchange Group (http://www.tse.or.jp/english/)

 12) What happens when I have delivered my valuation statement?

Upon receipt of your valuation statement, LBIE will verify that the valuation has been carried out correctly. This may  involve comparing the result with LBIE's own assessment of the value of the terminated transactions. If LBIE is unable to verify that the valuation has been carried out properly, either because insufficient information has been provided or because of a discrepancy between the amount claimed and LBIE's own assessment, LBIE is likely to request further information from you. You should make any payment in accordance with the terms of your master agreement and not wait for LBIE to complete the verification process outlined above.

 13) LBIE holds my assets as collateral - when will these be released?

The Administrators are in the process of identifying all creditors of LBIE and the counterparty's secured or unsecured status.  Any unsecured creditor claims will be assessed in aggregate with other unsecured creditors according to the order of payment related to such class of creditors. Secured creditor claims will be considered in conjunction with the disposal of the assets over which they have legal charge.

 14) Will my failing/pending trades be settled and if so, when?

The first priority of the Administrators is to determine the positions of LBIE and its clients.  Initially there is a backlog of failed trades to clear, a joint Lehman Brothers and PwC team has been working to resolve this.  In parallel, the Administrators are working with exchanges, clearing houses and trading counterparties to find practical solutions to some of these issues.  A paper regarding unsettled OTC trades was posted on PwC website on 8 October 2008 .

15) My valuation statement shows a payable to LBIE but I have used rights of set-off to reduce or extinguish this amount.

If you are exercising a right of set-off, in addition to your valuation statement, you should provide LBIE with details of amounts set off and the basis on which you claim to exercise the right (including details of any agreement under which the right arises). If LBIE considers that such a right does not exist or has not been validly exercised, or otherwise disagrees with your calculation, LBIE will seek settlement of any amounts so set off.

16) My valuation statement shows an amount payable to LBIE, how do I pay?

Please email lehmantreasury@uk.pwc.com to obtain payment instructions for terminations. Any payment should include interest, from the termination date of the transactions, calculated in accordance with the terms of your agreement with LBIE.

17) How much default interest will I have to pay?

The calculation rules for default interest will de defined in the terms of the relevant agreement.

 18) My valuation statement shows an amount payable to LBIE but I am not paying until the Administrator agrees the amount due.

The agreement governing your derivatives transactions is likely to require you to pay the amount stated in your valuation statement immediately. A failure to make such a payment will be a breach of contract and will generally attract interest at a default rate. Legal action is likely to be commenced to recover the amount due. In due course, LBIE will consider whether the valuation statement has been prepared correctly and notify you accordingly. If the amount you have paid is insufficient, a subsequent claim is likely to be made to recover the amount due.

19) My valuation statement shows an amount payable by LBIE. When will I be paid?

Subject to LBIE verifying the accuracy of your calculations, any amount due to you will rank as an unsecured claim against LBIE. In due course, you may submit a proof for this claim in order to receive a share of any distribution that is made to creditors.  For further details, please click on this link to the creditor's pages of this website