The International Herald and Tribune reports that UBS is suing Stamford-based Paramax Capital in the New York state supreme court for breach of contract over a $1.31 billion credit default swap on a CDO of ABS super senior tranche. According to the article, the litigation centres on the bank’s call for $33 million of additional margin collateral to back the swap, which was originally collateralised with $4.6 million.

The credit default swap, which pays 155 basis points, was traded in May 2007. UBS sued the fund in December after the fund refused to make a margin call in November, and Paramax filed a counterclaim in January. Paramax has alleged in its court filings that UBS exaggerated the decline in the value of the tranche and has said that UBS promised that the trade would have low mark-to-market volatility, according to the article.