CDO vehicle fights trustee legal bill, reports the Australian

The Australian newspaper reported today on actions taken by Perpetual Trustee against Mahogany the vehicle through which two CDOs are listed on the Australian stock exchange

TAGS: Law suits

Comment by: Anonymous. Posted 14 years ago [2009-10-22 22:27:30]

The docs say that in the event of a default the deal should be unwound and the proceeds paid out to investors (Perpetual on behalf of Mahogany as the investor). Perpetual tried for 9 months to get BNY, the Trustee for the underlying notes, to do this through negotiation, but BNY refused, essentially leaving Perpetual no option but to sue. Perpetual were presumably fearful that Mahogany investors would blame them for not taking any action to progress things (as have mini bond investors in Hong Kong blamed their Trustees and vehicle issuers when the real problem was further up the chain with BNY also). Only when Perpetual sued, did Lehman get involved seeing BNY as a soft target to extract monies from through frivolous law suits. However you are correct that the bankruptcy lawyers gain the most. Perpetual has first claim over the Mahogany assets, BNY has first claim over the Saphir assets and Lehman's administrators have first claim over the assets of the Lehman estate. There is basically no cost control over the bankruptcy lawyers as the people appointing them are paying them with investors money rather than their own so the care factor is low.

Comment by: Anonymous. Posted 14 years ago [2009-10-20 13:30:39]

I wonder if Perpetual thought of asking Lehman to unwind, instead of going the legal route... Maybe they could have saved the $1.7mm (which is an astronomical amount for this). As usual, the bankruptcy lawyers gain the most.

Comment by: Anonymous. Posted 14 years ago [2009-10-14 02:57:22]

Looks like Perpetual hasn't thought this through very well. The court cases will almost certainly take more than a few months to reach a resolution and before then they'll either have to reverse their stance and give monies back to Mahogany to keep it going or put it into bankruptcy when presumably they'll have to assume all its duties and deal with the retail investors directly themselves.

Comment by: Anonymous. Posted 14 years ago [2009-10-13 13:16:21]

Events like these will only make future structured deals more difficult to get rated. They justify the doomsday scenarios that rating agency analysts dream up but were usually accepted,prior to 2007, as extreme and unlikely events. Not that there are all these investors eager to buy collateralised CSOs now anyway.