OfficeMax inks deal to extinguish Lehman-backed timber notes liability

By Caroline Salls

Pittsburgh, Aug. 16 - OfficeMax Inc. has entered into an agreement to extinguish non-recourse liability related to Lehman-backed timber notes, according to a company news release.

Under the agreement, the trustee will simultaneously release OfficeMax and its affiliates from the non-recourse liabilities upon the transfer of the Lehman-backed note and guaranty from OfficeMax to the trustee for securitization noteholders.

The agreement is subject to bankruptcy court approval, which OfficeMax said it expects be determined within the next two to three months.

"We are pleased with the imminent removal of the non-recourse Lehman timber notes liability from our financial statements," OfficeMax president and chief executive officer Ravi Saligram said in the release.

"We continue to explore ways to enhance our capital structure and drive shareholder value. Today's event is a significant step forward in our efforts to simplify our balance sheet."

OfficeMax executive vice president, chief financial officer and chief administrative officer Bruce Besanko said in the release, "We remain in the midst of a comprehensive review of all aspects of our balance sheet."

"The extinguishment of the Lehman non-recourse liability will help to create greater clarity for our investors, as our efforts to simplify the balance sheet continue."

Pre-tax gain

Along with the effectiveness of the agreement and extinguishment of this debt, OfficeMax said it will recognize a non-cash, pre-tax gain of $671.1 million.

The gain is equal to the difference between the $735 million carrying value of the non-recourse liability pertaining to the Lehman-backed securitization notes plus a related $17.9 million interest payable and the $32.2 million carrying value of the receivable pertaining to the Lehman-backed installment note plus a $49.6 million initial distribution made by the Lehman estate.

OfficeMax said it expects to make a roughly $15 million cash payment in the quarter following effectiveness of the agreement, representing the accelerated tax liability on about one half of the gain on a 2004 timberlands sale transaction, mostly offset by alternative minimum tax credits.

The company said it expects to use available cash to fund the tax payment.

Note background

OfficeMax said it received an $817.5-million Lehman-backed note in connection with a 2004 timberlands sale. Also in 2004, OfficeMax monetized the note by issuing securitization notes through a special purpose entity.

Payment of these securitization notes was guaranteed by Lehman and was non-recourse to OfficeMax. Lehman's Sept. 15, 2008 bankruptcy filing constituted an event of default under the note.

OfficeMax is based in Naperville, Ill. The company provides office supplies and paper, print and document services; technology products and solutions; and office furniture to large, medium and small businesses, government offices and consumers.

New York-based Lehman Brothers Holdings Inc. was the fourth-largest investment bank in the United States. The company emerged from bankruptcy on March 6, 2012.

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