Sept. 15 (Bloomberg) -- Lehman Brothers Holdings Inc.'s subordinated bondholders and preferred stock investors may receive limited to no recovery, while holders of higher-rated bonds may get as little as 60 cents on the dollar.

Lehman's senior unsecured bonds plunged to as low as 30 cents on the dollar and the New York-based firm's subordinated notes tumbled to as little as 3.5 cents. Investors in Lehman senior bonds are likely to get between 60 cents and 80 cents on the dollar, according to bond research firm CreditSights Inc.

Lehman, once the fourth-biggest U.S. investment bank, today filed for bankruptcy after Barclays Plc and Bank of America Corp. abandoned takeover talks. It owes its 10 largest unsecured creditors more than $157 billion, including $155 billion to bondholders, documents submitted to the bankruptcy court show.

``Liquidity has become constrained, extremely limiting flexibility,'' Fitch Ratings analysts Eileen Fahey in New York and Leslie Bright in New York wrote.

Lehman's preferred stock and subordinated debt were lowered 15 grades by Fitch to C, 11 steps below investment quality, from A, the ratings company said today. Subordinated bondholders and preferred stock-holders will have ``limited to no recovery,'' Fahey wrote in the report.

Holders of senior unsecured bonds have historically recovered an average of about 40 cents on the dollar in a default, while subordinated bonds have brought about 30 cents, according to Mariarosa Verde, an analyst at Fitch in New York.

`Orderly Liquidation'

Lehman has $17 billion of residential-related securities and whole loans and $37 billion of commercial real estate holdings that will lose value if the bank liquidates the assets as other banks curb lending to the firm, Fitch said. Lehman is exploring the sale of its broker-dealer operation and continues to hold talks on the sale of its asset-management unit, including fund manager Neuberger Berman, the company said today.

``An orderly liquidation should provide substantive cash for recovery at the senior level,'' the Fitch analysts said.

Lehman's $2.5 billion of 6.875 percent senior unsecured notes due in 2018 fell 46.5 cents to 36 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. Lehman's $1.5 billion of 6.875 percent subordinated notes due in 2037 plunged 69 cents to 3.5 cents on the dollar.

`Mind-Blowing'

``This is mind-blowing,'' said Mirko Mikelic, senior portfolio manager at Fifth Third Asset Management in Grand Rapids, Michigan. ``You have to look back to the Great Depression for the last time something like this happened.''

Recoveries for senior unsecured debt ``should trend more toward the bottom end of the range,'' at about 60 cents, CreditSights analysts led by David Hendler and Baylor Lancaster wrote in a research note yesterday.

``In our first cut analysis, subordinated debt and preferred stock seem to be nil,'' the analysts for New York-based CreditSights wrote.

The largest single creditor in the Chapter 11 filing is Tokyo-based Aozora Bank Ltd., owed $463 million for a bank loan. The largest unsecured creditors are Citigroup Inc. and The Bank of New York Mellon Corp. for their roles as trustees for bondholders. Lehman listed $613 billion of debt and $639 billion of assets.

To contact the reporters for this story: Pierre Paulden in New York at ppaulden@bloomberg.net; Caroline Salas in New York at csalas1@bloomberg.net

Last Updated: September 15, 2008 17:33 EDT