thanks, coach -- this post is a "keeper". ___________________________________________
Posted by: coach tequila Date: Monday, February 01, 2010 8:41:27 PM In reply to: brikk who wrote msg# 6708 Post # of 6715 I completely agree...the next 60 days thru the end of March will be action packed!
Examiner...Week of Feb 1 JPM Discovery...Feb 10 MOR for Feb 15 (Balance sheet??) Reorg Plan...March 31.
99% of all court decisions in Lehman favor! the Perfect Storm!
The US Bankruptcy Court of the Southern District of New York put a big question mark over the future of much securitisation this week, when it ruled that all-important subordination provisions in a synthetic CDO transaction was invalid under the US Bankruptcy Code.
The case involves a dispute between the bankrupt Lehman Brothers estate and the bondholder trustees in the Lehman-sponsored Dante CDO programme, and it centres on clauses in the deal documentation that subordinate the claim of the credit default swap counterparty (in this case Lehman Brothers Special Financing) on the transaction collateral to those of the bondholders in the event that the counterparty defaults under the terms of the swap agreement.
This clearly happened after Lehman and its subsidiaries filed for bankruptcy from September 2008 onwards, but lawyers acting for the bankrupt estate challenged the validity of the subordination provisions under the Code after the bondholder trustees attempted to enforce their claim on the collateral.
Last year, both the High Court and Court of Appeal in the UK ruled that that the provisions was valid under English law (on which the deal documentation was based), but the New York Court's ruling means the final outcome is now highly uncertain. Under the international principles of comity, the two legal jurisdictions are supposed to work together to "harmonise" their rulings, but it is difficult to see how this will be possible given the adamant stance in the US decision.
US Bankruptcy Judge James Peck ruled that the provisions were "unenforceable and violate the ipso facto provisions of the Bankruptcy Code".
Further on, his judgement stated that "despite the resulting cross-border conflict, the United States has a strong interest in having a US bankruptcy court resolve issues of bankruptcy law, particularly in a circumstance such as this where the provisions of the Bankruptcy Code provide far greater protections than are available under applicable provisions of foreign law".
If the UK courts agree that US bankruptcy law should prevail in this case, the repercussions will be considerable. The rating agencies have already warned that all transactions on which US counterparties play a significant role will be re-rated to the rating of that counterparty - and some reports suggest this could impact around 1,000 outstanding structured-finance transactions.
Securitisation analysts also fear it could jeopardise the future of the entire business. "We believe that if this decision holds upon further appeal (assuming there is one) it could have a negative impact on the future of securitisation and structured credit as it challenges the very foundation of the business," said Atish Kakodkar at the research firm CreditSights.
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