This was a big week for Lehman and his brothers.
Lehman moved $2.8 billion in loans, a lot of it in leveraged-buyout debt, into a freshly-minted investment vehicle, "Freedom," which promptly issued new debt securities backed by the risky loans.
The maneuver wowed the guys at Moody's and Standard & Poor's. About $2.26 billion of the new offerings got an immediate boost in credit ratings. With heroic speed Lehman then packaged some of the investment-grade Freedom bonds as collateral for low-interest, short-term loans from the Fed.
Lehman thus turned a lose-lose situation into an instant money-maker. "Any time you can leverage Freedom you're ahead of the curve," Lehman said. "The curve is just like a fast ball, just a trifle slower, and it breaks. If you wait for it and your timing is good, you can hit it out of the park.
"And that's what I think we did here."
See Serena Ng and Susanne Craig, "How Lehman Opened the Fed's Spigot," in Wall Street Journal, Friday, April 11, 2008, p. C1.
— DL