Effect of Lehman Bro’s collapse emerging

Mahogany Capital — an Australian listed investment company heavily intertwined with Lehman Brothers — has called for a voluntary suspension of trading as the dealings of the companies backing it grind to a halt.

Mahogany Capital has requested voluntary suspension of trading of its $75 million Notes Series I and its $50 million Notes Series II.

Lehman Brothers Special Financing — a related party of Lehman Brothers — is the portfolio counterparty of Saphir Finance, the company that issued the Saphir Notes, the authorised investments of Mahogany Capital in relation to Mahogany Notes I and II.

The performance of Lehman Brothers Special Financing is guaranteed by Lehman Brothers, which declared bankruptcy this week.

The scheduled distribution of $2.72 per Mahogany Note II, which was due to take place yesterday, didn’t occur, as Lehman Brothers Special Financing didn’t send Saphir Finance its due funds.

One week ago (September 11) the Series II Notes were exposed to the collapse of Federal National Mortgage Association, resulting in a credit event. The Federal National Mortgage Association was a reference entity in the return component in the interest portfolio.

At the time, Mahogany Capital said it was anticipated that the next scheduled distribution “would take place on September 17, 2008, provided that no further credit events occur in the return component of the interest portfolio before September 17, 2008”.

Mahogany Capital is now working with the Perpetual Trustee Company and Bank of New York Mellon in their respective roles as security and note trustee and trustee and custodian of the Saphir Notes to clarify the situation.

The directors of Mahogany Capital hope the temporary suspension will be lifted by Wednesday October 1.

Lehman Brothers Australia is the lead manager for Mahogany Capital’s Notes Series. Two of the three directors of Mahogany Capital are employed by Lehman Brothers Australia.

Mahogany Capital director Sean Moore is also senior vice-president and chief administrative officer of Lehman Brothers Australia. Moore has been with Lehman Brothers for more than 12 years.

Director Leon Hindle is also managing director and head of the collateralised debt obligation and structured credit trading group at Lehman Brothers Asia.

The other director is Robert Bishop, a solicitor with his own Sydney-based corporate finance business, First Capital Markets. Bishop oversees the trading and distribution of all structured credit products in the Asia-Pacific region for Lehman Brothers Asia.

Moore is a member of Lehman Brothers’ Australian executive, with responsibility for the corporate division that includes finance, product control, risk management, legal and compliance, operations, IT, human resources and marketing and communications, according to the Mahogany Capital website.