OfficeMax debt backed by Lehman is in default

Shares of OfficeMax Inc. plunged the most in almost 21 years Friday after the office supplies retailer said debt that was partially guaranteed by Lehman Bros. Holdings Inc. was in default.

OfficeMax shares fell $2.12, or 16%, to $11.11, the biggest one-day decline since October 1987.

OfficeMax issued $1.47 billion in notes in 2004 in a transaction designed to defer taxes on the sale of timberlands, Christopher Horvers, an analyst at JPMorgan Securities Inc. in New York, said in a research note.

Lehman guaranteed half of the debt through $817.5 million of installment notes. The investment bank filed for the biggest bankruptcy in U.S. history this week, creating an “event of default” for the installments, OfficeMax said in a regulatory filing.

OfficeMax said no payment default had occurred. Should there be a default on payments or should the value of the installment notes become impaired, OfficeMax said it might “suffer adverse consequences.”

The implications of the default “are uncertain,” said Stephen Chick, an analyst at Friedman, Billings, Ramsey & Co.