Lehman Brothers to price $3 billion of perpetual convertible preferreds at 7%-7.5% dividend, up 30%-35%

By Rebecca Melvin

New York, March 31 - Lehman Brothers Holdings Inc. plans to price $3 billion of perpetual convertible preferred stock, or 3 million shares at $1,000 per share liquidation preference, before the market opens on Tuesday, according to a market source.

There is an option to purchase up to 450,000 additional shares of the non-cumulative perpetual convertible preferred stock, series P, which carries a par value of $1.00 per share.

New York-based Lehman Brothers Inc. is the bookrunner of the offering, which is being made under Lehman Brothers Holdings' existing shelf registration statement.

The shares were talked with a dividend of 7% to 7.5% and an initial conversion premium of 30% to 35%.

The shares are non-callable for five years and have mandatory conversion after five years, subject to a 130% hurdle.

Upon conversion, the preferred stock will be convertible into shares of Lehman Brothers' common stock, plus cash in lieu of fractional shares.

They have standard dividend and takeover protection and net-share settlement.

Proceeds will be used to bolster the firm's capital and increase financial flexibility, according to a company news release.

"Given the challenging environment and our previously stated view that it will likely continue the balance of the year, issuing convertible preferred is appropriate as it optimizes our funding and accelerates our plan to reduce leverage, and at the same time minimizes dilution to our shareholders," Erin Callan, managing director and chief financial officer of Lehman Brothers, said in a statement.

"We also felt this was the right time as there was a window of opportunity in the market, as we have received significant interest from several key institutional investors, who have been strong supporters of the firm over time," Callan said.

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