GSC bankruptcy could trigger manager replacement, says S&P

After news that GSC Group has filed for chapter 11 bankruptcy, Standard & Poor’s has announced that it is assessing the possible impact this may have on the ratings of GCS’s 12 CLOs. The rating agency adds that, according to reports, GSC intends to sell its CLO management obligations. But it notes that the bankruptcy could also allow investors to sack GSC as manager.

According to Creditflux’s analysis, the collateral management agreements for most or all of GSC’s CLOs contain provisions for the removal of the manager with cause, in the event of the manager’s bankruptcy. In most cases, this would require the agreement of a majority of equity noteholders, and controlling class noteholders voting seperately.

The manager is known to own equity in most of its deals, but it is not clear whether this holding would be large enough to affect the appointment of a replacement manager. In any case, GSC could not use its own equity positions to stop itself being sacked, since the notes it holds have no voting rights on that particular question.