Lehman legal wrangle leaves CSO investors in limbo

By Mike Peterson

Thursday, March 05, 2009

Two listed synthetic CDOs have been left in limbo following the default of the deals' arranger Lehman Brothers

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Comment by: Moray Vincent. Posted 15 years ago [2009-03-06 06:36:14]

The ratings issue is an interesting one, because if Lehman gets up in its lawsuit or if BNY, London continues to refuse to act, then basically the documentation doesn't work in practice and the logical implication is that the risk of default of the swap counterparty cannot be removed from synthetic CDOs (and probably many other structured finance transactions). Hence no existing "AAA" and "AA" CDO transaction should be rated by the agencies above the level of the swap counterparty and the rating agencies should (must) immediately downgrade these deals to the level of the swap counterparty (where BNY, London is Trustee or unilaterally if Lehman wins its case).

Comment by: Anonymous. Posted 15 years ago [2009-03-05 22:57:08]

I think the issues are more to do with the Trustee, BNY Mellon, rather than the jurisdiction. I know of some US Trustees who just paid out the CDO collateral to investors last year after Lehman defaulted. BNY Mellon in London is the only Trustee I know of who is with-holding collateral and they seem to have the least risk ?

CLOs

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