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Eagle Energy Partners Still in Lehman Brothers' Hands

While the purchase of Lehman Brothers Inc., a subsidiary of bankrupt Lehman Brothers Holdings Inc., by Barclays Capital Inc. for $1.75 billion was approved by a bankruptcy court judge, the sale of the investment banking and trading businesses as well as Lehman's New York headquarters building does not include Lehman's Eagle Energy Partners energy trading unit.

The removal of Eagle from the deal came among several other changes prior to its approval by Judge James Peck of the U.S. Bankruptcy Court for the Southern District of New York on Sept. 20. Lehman did not respond to questions about Eagle's future last week, and calls to Eagle's Houston office were not returned.

In a pipeline capacity report last week, Bentek Energy LLC noted that Eagle holds 60 transportation contracts on 12 pipelines and storage facilities for a total maximum daily quantity of 1.2 MMDth/d. "Over half of that total is on TransCanada's ANR system, associated with market-area storage capacity," Bentek said.

TransCanada was one of numerous intervenors in the Lehman bankruptcy and sought to block the sale of Eagle to Barclays because the transaction might have given Barclays the ability to reject Eagle contracts even though Eagle itself has not declared bankruptcy. "At this point we do not know whether the TransCanada objection was a determining factor in the exclusion of the Eagle assets," Bentek said. "Eagle is reported to have posted necessary collateral with the pipeline companies as Lehman moved toward bankruptcy. Certain transactions of Eagle and Lehman Commodity Services had been guaranteed by Lehman."

Lehman acquired the two-thirds of Eagle that it did not already own in May 2007 (see NGI, May 14, 2007) after it acquired its first third of Eagle in 2006 (see NGI, April 3, 2006). Eagle was formed by former Dynegy executives in 2003 and manages and optimizes supply, transportation, transmission, load and storage portfolios on behalf of wholesale natural gas and power clients.

Britain's Barclays is a registered futures commission merchant (FCM), as is Lehman Brothers Inc. "Today's purchase by Barclays provides for an orderly transfer of customer accounts -- this is a strong and positive development for the customers of Lehman's futures business," said Commodity Futures Trading Commission (CFTC) Acting Chairman Walt Lukken. "The Commodity Exchange Act and CFTC regulations protect customers of FCMs by requiring segregation of their funds. The agency worked to ensure these laws and regulations were upheld and customers at Lehman's regulated FCM were protected..."

The Lehman-Barclays deal was struck and approved in hasty fashion in order to prevent the situtation at Lehman from deteriorating further (see NGI, Sept. 22). Nevertheless, Wall Street's recent unrest has sent a panic through energy trading. The collapse of Lehman and the government bailout of American International Group (AIG) have caused worry among commodities clients of those firms that they won't be able to collect money owed them on trades. Those who hedged their energy purchases or sales with Lehman may be forced to recover whatever they can through the bankruptcy process.

The near failure of Constellation Energy Group also has contributed to a crisis of confidence in energy markets. Constellation was recently acquired by MidAmerican Energy, which just resuscitated the firm with a $1 billion capital infusion (see related story).

Counterparties to Morgan Stanley have grown cautious of commodity trading with the venerable investment bank over concerns about its capitalization. This has prompted Morgan to offer counterparties the opportunity to unwind their deals if they are nervous about Morgan's ability to meet its obligations, according to press reports. Last week Morgan said it would sell up to 20% of the company to Mitsubishi UFJ Financial Group Inc. The deal was announced shortly after Morgan gained regulatory approval to become a bank holding company, allowing it to operate as a commercial bank and receive deposits, which are intended to boost its liquidity. Going forward, Morgan will be regulated by the Federal Reserve instead of the Securities and Exchange Commission.

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