OfficeMax 2011 Annual Report Download - page 63

issued by single-member limited liability companies formed by affiliates of Boise Cascade, L.L.C (the “Note
Issuers”). In order to support the Installment Notes, the Note Issuers transferred $1,635 million in cash to
Lehman and Wachovia Corporation (“Wachovia”) ($817.5 million to each of Lehman and Wachovia) who issued
collateral notes to the Note Issuers and guaranteed the Installment Notes. In December 2004, we completed a
securitization transaction in which the Company’s interests in the Installment Notes and related guarantees were
transferred to wholly-owned bankruptcy remote subsidiaries. The subsidiaries pledged the Installment Notes and
related guarantees and issued securitized notes (the “Securitization Notes”) in the amount of $1,470 million.
Recourse on the Securitization Notes is limited to the proceeds from the applicable pledged Installment Notes
and underlying Lehman or Wachovia guaranty. As a result, there is no recourse against OfficeMax, and the
Securitization Notes have been reported as non-recourse debt in our Consolidated Balance Sheets.
On September 15, 2008, Lehman filed for bankruptcy. Lehman’s bankruptcy filing constituted an event of
default under the $817.5 million Installment Note guaranteed by Lehman (the “Lehman Guaranteed Installment
Note”). We are required for accounting purposes to assess the carrying value of assets whenever circumstances
indicate that a decline in value may have occurred. After evaluating the situation, we concluded in late October
2008 that as a result of the Lehman bankruptcy, it was probable that we would be unable to collect all amounts
due according to the contractual terms of the Lehman Guaranteed Installment Note. Accordingly, we evaluated
the carrying value of the Lehman Guaranteed Installment Note and reduced it to the estimated amount we then
expected to collect ($81.8 million) by recording a non-cash impairment charge of $735.8 million, pre-tax.
Measuring impairment of a loan requires judgment and estimates, and the eventual outcome may differ from
our estimate by a material amount. The Lehman Guaranteed Installment Note has been pledged as collateral for
the related Securitization Notes, and therefore it may not freely be transferred to any party other than the
Indenture Trustee. Accordingly, the ultimate amount to be realized on the Lehman Guaranteed Installment Note
depends on the proceeds from the Lehman bankruptcy estate. Lehman’s disclosure statement on its Chapter 11
Plan (the “Disclosure Statement”) was confirmed by the United States Bankruptcy Court for the Southern District
of New York on December 6, 2011. The Disclosure Statement provides a range of estimated recoveries for
various classes of unsecured creditors of Lehman. Pursuant to a stipulation entered into on October 7, 2011 and
approved by the bankruptcy court on December 14, 2011, the claim of the Securitization Note holders through
the Note Issuers will be treated as a class 3 senior unsecured claim (estimated to recover at a rate of
approximately 21.1% under the Chapter 11 Plan) rather than falling into any other class of guarantee claims
(estimated to recover at a rate of approximately 11%-13% depending on the class under the Chapter 11 Plan).
Due to this categorization, provisions of the stipulation that make certain funds unavailable to the claim that
would otherwise be available to class 3 senior unsecured claimants, the status of the bankruptcy proceedings, and
based on information in the Disclosure Statement, it appears that Securitization Note holders may recover at a
potential rate within the range of 17% to 20%. However, uncertainties exist as to the actual recovery that will
ultimately be received on the claim. The disposition of a related claim of the Securitization Note holders through
us on the guaranty may result in an additional recovery and the funds available for claimants will depend on
Lehman’s ongoing claims resolution process, the establishment of reserves for unresolved claims, and the value
of the assets Lehman is able to liquidate. Due to these uncertainties and other factors, we have not increased our
assumed recovery rate or the carrying value of the Lehman Guaranteed Installment Note. We expect that an
initial distribution may be made on the Securitization Note holders’ claim as early as March 30, 2012. Further
distributions are expected to occur over a several-year period. Going forward, we intend to adjust the carrying
value of the Lehman Guaranteed Installment Note as further information regarding our share of the proceeds, if
any, from the Lehman bankruptcy estate becomes available.
Recourse on the Securitization Notes is limited to the proceeds from the applicable pledged Installment
Notes and underlying Lehman or Wachovia guaranty, and any proceeds we receive from the bankruptcy will be
distributed to the Securitization Note holders. However, under current generally accepted accounting principles,
we are required to continue to recognize the liability related to the Securitization Notes guaranteed by Lehman
until such time as the liability has been extinguished. The liability will be extinguished when the Lehman
Guaranteed Installment Note and the related guaranty are transferred to and accepted by the Securitization Note
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