Lehman to offer $3 billion convertible preferred shares

Lehman decided to raise some cash by issuing $3 billion in convertible preferred shares.  In an interview today: 

"We still maintain that we don't need capital, but we've realized that perception is the dominant issue in today's markets," the chief financial officer, Erin Callan, said in an interview. "This is an endorsement of our balance sheet by investors."

Lehman did not provide terms of the sale, which apparently is being priced tonight.  Price talk is for an interest rate of 7.05 to 7.5% and that the conversion premium would be approx 30% above the current stock price.  The preferred will be noncumulative, meaning the firm can skip dividends without much penalty if it runs into trouble. Lehman said it would be the "sole book-running manager" of the offering, but did not say if there was a syndicate behind it or if it was going to place the shares by itself, though the wording of its press release indicated the latter. 

At a minimum, I would say that this is a bit slightly alarming and should be viewed with caution by current LEH equity holders.  This, by the way, comes on the heels of Lehman saying it has plenty of liquidity - more than $90 billion of assets it holds in cash or fairly liquid assets.   

The stock sold off more than 2% after hours.  I would avoid the name at the moment and would expect to see analysts lowering EPS estimates in the near term.