Lehman Failure Could Impact More Than Just Financial Stocks

New York, NY (AHN) - The Lehman Brothers bankruptcy filing is a huge blow to the financial sector. However, the effects could be felt through a wide range of corporations that hold Lehman debt securities.

Debt securities, such as corporate bonds, convertibles and the like are not just held by individual investors. Corporations with cash on their books invest in corporate debt as well, seeking to earn a return on their money that would otherwise be sitting idle.

A complete Lehman failure could possibly negate any interest corporations may have made on Lehman debt securities. Additionally, depending on what type of debt instrument they hold, they may lose their investment altogether.

When a company goes out of business, its creditors and investors are paid out in a specific order. Now, direct secured debt, which is what most corporations hold, is at the top of the line. Yet, there is no guarantee that if Lehman goes completely insolvent and its assets are sold off that the total capital raise will cover what is owed to all the holders of direct debt.

Humana, the healthcare provider, is an example of a non-financial industry company that holds Lehman debt. As of Sept. 12, the company held $25.7 million if direct debt securities. There are many more corporations that first this same scenario.

These companies businesses are not at risk because they hold Lehman debt, however, their total cash flow positions could be adversely affect depending on Lehman's end result. It's the ripple affect that generally goes unnoticed.