NEW YORK, Sep 09, 2014 (BUSINESS WIRE) -- A court decision last week in favor of Trapeza Capital Management, LLC is positive for holders of trust-preferred collateralized debt obligations (TruPS CDOs), Fitch Ratings says. The court decided not to dismiss the Chapter 7 involuntary bankruptcy Trapeza filed against FMB Bancshares in June as requested by the bank.
The judge in this case stated that the terms of the indenture and amended trust agreement give Trapeza the right, as the sole creditor, to force liquidation of the subsidiary bank as an option to remedy a default on the note. Although FMB is legally prohibited from making any distributions of interest or principal on trust-preferred securities without prior approval of the Federal Reserve, as indicated by the regulatory enforcement agreement, it still has the legal duty to satisfy the contractual obligations to Trapeza. The fact that FMB cannot make any payment on its debt to Trapeza does not waive its legal duty to pay.
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