Impact of Lehman Brothers¿ Chapter 11 situation on Robeco's fixed income funds Report No. 2
Announcement
Rob van Bommel, Executive Vice President, Robeco Products & Services
Limited impact of Lehman Brothers’ Chapter 11 situation on Robeco’s fixed income investment funds
Last Monday Lehman Brothers’ holding company filed for bankruptcy protection. According to the first reports the operating companies would remain active. Based on these reports Robeco concluded that this separation was unlikely to be maintained and immediately took appropriate measures to sell the exposure to Lehman Brothers. Over the past days, Robeco’s priority has been to limit any possible consequences of Lehman Brothers’ Chapter 11 situation for our investment funds.
Impact
The impact of Lehman’s Chapter 11 situation is twofold:
1. impact on account of direct exposure through securities issued by Lehman Brothers
2. impact on account of exposure to Lehman Brothers as a broker (counterparty risk)
Direct exposure
Losses on investments in securities issued by Lehman are small for our funds. Yesterday, Robeco published figures on its web site regarding the investments in Lehman for each of its investment funds. Through the Robeco Product Selector and at Robeco.nl/alternatives (or robeco.com/alternatives), you can find additional information about the impact on Robeco CDOs and other Robeco structured products.
Counterparty risk
The impact of the exposure to Lehman as a counterparty also appears to be limited. For its fixed income portfolios Robeco did a lot of business with Lehman as a counterparty. Many of these transactions concerned OTC derivatives, including many Credit Default Swaps and Interest Rate Swaps, for which Lehman Brothers acted as a counterparty. Such OTC contracts are subject to ISDA agreements with accompanying CSAs, based on which collateral is exchanged during the term of the contracts. These agreements also stipulate how one should act in case of the counterparty’s bankruptcy.
Follow-up
Robeco has acted fully in accordance with the legal terms and conditions of these agreements and has taken all necessary formal actions to end the outstanding contracts with Lehman Brothers. All contracts with Lehman Brothers had been dissolved on Monday, September 15, at the end of the day. At the same time Robeco has concluded contracts with other counterparties, while maintaining market exposure. As a result there is:
1. no loss of duration exposure for the Liability Driven funds
2. no loss of market exposure concerning other OTC contracts concluded with Lehman
3. a limited number of modest claims against Lehman relating to OTC contracts
Important information
This document has been carefully prepared by Robeco Asset Management, a trade name of Robeco Institutional Asset Management B.V. (hereafter Robeco). It is intended to provide the reader with information on Robeco’s specific capabilities,but does not constitute a recommendation to buy or sell securities or investment products.
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