September 15, 2008 / 10:42 AM / 12 years ago

UPDATE 1-Moody's, Fitch slash Lehman ratings on bankruptcy

(Adds Fitch downgrade, quotes)

LONDON, Sept 15 (Reuters) - Moody’s Investors Service cut its ratings on Lehman Brothers Holdings Inc LEH.N deep into “junk” status on Monday, while Fitch Ratings downgraded it to default after the group filed for bankruptcy protection.

Moody’s cut its ratings on the senior debt and some guaranteed subsidiaries of Lehman Brothers Holdings, the parent of Lehman Brothers Inc, by 10 notches to B3 from A2. It also cut the group’s subordinated debt to Caa2 from A3 and its preferred stock to Ca from Baa1.

“Today’s rating action follows the collapse in market confidence in the firm, and Lehman’s announcement that it was filing for Chapter 11 bankruptcy protection after its failure to reach a merger agreement with a stronger strategic partner,” Moody’s said.

Fitch cut its long-term and short-term issuer default ratings on Lehman Brothers Holdings and other subsidiaries to default or “D”, its senior debt to CCC from A+, and its subordinated debt and preferred stock to C from A.

An orderly liquidation should provide substantive cash for recovery at the senior level, Fitch said, but the credit rating agency expects “limited to no recovery at the subordinated and preferred debt levels at Lehman Brother Holding Inc.”.

Moody’s had placed the firm on review with direction uncertain on Sept. 10 after the deterioration in Lehman’s situation, but said Lehman’s credit deterioration had “been far sharper than anticipated” since then.

It slashed the senior long-term rating of Lehman Brothers Inc by 9 notches to B1 from A1 and its subordinated debt to B3 from A2. Short-term ratings on all Lehman entities were cut to Not-Prime from Prime-1.

Moody’s said it may cut all Lehman long-term ratings again, placing the debt on credit watch negative.

Fitch said its ratings on subsidiaries will likely be downgraded as more information becomes available. Fitch believes Lehman Brothers Inc may continue to operate for some time, although eventual default remains a “real possibility”. (Reporting by Natalie Harrison; Editing by David Holmes and Jason Neely)

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