On 8 June 2015, the Winding-up Board of LBI brought to the attention of LBI´s creditors an announcement by the Ministry of Finance concerning a bill on a stability levy that was expected to be introduced in Parliament and a proposal from certain creditors holding significant claims on the estate of LBI for a voluntary stability contribution designed to neutralize the balance of payments risks posed by LBI’s domestic assets. The creditors’ proposal anticipates that the winding-up of LBI’s estate is concluded by a composition of its creditors.

Further to the above, the Winding-up Board of LBI wishes, to the extent possible at this point in time, to update creditors on the current status of these issues and the expected process ahead.

The Winding-up Board’s intentions are to seek a conclusion of the winding-up proceedings through a composition based on the creditors’ proposal and in line with the relevant provisions of Icelandic law. Preparations in this respect are already underway. The Winding-up Board has engaged Morrison & Foerster LLP as legal advisors, GLC Advisors & Co., LLC as financial advisors and Deloitte hf. as tax advisors.

The recent legislative developments and the enactment of the Act on Stability Levy on 17 July, 2015, require that the Winding-up Board seek approval of a composition plan in an expedited timeframe in order to avoid a significant reduction to anticipated creditor recoveries. Creditor involvement is critical in obtaining such approval and, accordingly, the Winding-up Board encourages creditors to participate in the upcoming process.

Under this legislation, if LBI’s composition plan is confirmed by the Icelandic court before December 31, 2015, it can obtain authorization from the Central Bank of Iceland (the CBI) to distribute funds to creditors, provided that they fulfill certain conditions, including paying a stability contribution to the CBI. If LBI fails to obtain court approval of a composition agreement by year end, it will be subjected to a one-time stability levy equal to 39% of the value of the bank’s total assets, assessed as of 31 December 2015. [More information about this legislation can be found at:

http://eng.fjarmalaraduneyti.is/news/nr/19712; http://eng.fjarmalaraduneyti.is/news/nr/19594; and http://eng.fjarmalaraduneyti.is/news/nr/19599.

The imposition of a stability levy on the LBI estate instead of payment of the proposed stability contribution under a court approval composition would significantly reduce the amount of LBI’s assets available for distribution to creditors. As a result, using reported numbers at end Q1 2015 (and not taking into account disputed priority claims under Articles 109 - 111 of the Act on Bankruptcy etc. and operational costs until year end 2015), the estimated recoveries to be paid to LBI’s creditors holding unsecured claims under Article 113 of the Act on Bankruptcy etc. would decrease from approximately ISK 218bn (in the latter case) to approximately ISK 72bn (in the former case), and thus reduce the expected recovery rate for such unsecured creditors from approximately 13% to approximately 4%.

In order to avoid this negative outcome, the Winding-up Board is working to develop a composition proposal to be voted on by creditors on an accelerated basis, with the goal of obtaining Icelandic court confirmation before year end.

In order for the composition plan to be approved, votes in favor of the composition plan must be received from (a) a minimum of 60% in number of total creditors casting votes, and (b) creditors holding claims in amount equivalent to the percentage of the estimated shortfall in recovery, based on the Winding-up Board’s eventual statutory estimation of unsecured creditors’ recovery under the composition plan.

Because of the high threshold of votes needed to approve the composition proposal, any creditor that fails to vote will have the same impact as a vote against the composition plan. Accordingly, it is imperative that creditors actually cast their votes when the time comes (or, in case of beneficial owners under the Trust Indentures, direct the Trustee in question, to so vote).

The Winding-up Board anticipates seeking approval of the composition plan in accordance with the following timeline (which may be subject to change):

• On or before 16 August – letter to be sent to the CBI explaining LBI’s position and to set out the process ahead to the extent possible.
• Late-September 2015 – Creditors’ meeting in Reykjavík. Introduction of the composition plan and the stability contribution. Details of the composition plan and information memorandum to be sent to creditors and LBI’s formal exemption request based on the composition plan to be sent to the CBI.
• Late October 2015 – composition voting meeting of creditors to be held.
• Late October 2015/early November 2015 – composition plan submitted to the Icelandic District Court for approval.
• Early to Mid-November 2015 – District Court hearing on composition plan to be held.
• Early to Late-December 2015 – expected confirmation of composition plan by court.

Upon confirmation of the composition plan the fulfillment of the composition elements can commence, including the execution of the intended stability contribution and payment of approved claims with priority under Article 112 of the Act on Bankruptcy etc.

The Winding-up Board will continue to provide creditors with additional information regarding the composition plan as it develops over the coming weeks and months. In the meantime, any questions about the composition plan or voting process may be directed to the Winding-up Board by e-mail:windingupproceedings@lbi.is, or by using the contact information provided on LBI´s website: http://www.lbi.is/home/contact-us/“