Perpetual Trustee Company Limited v. BNY Corporate Trustee
Services Limited and Lehman Brothers Special Financing Inc. [2009]
EWHC 1912 (Ch)
The High Court of England and Wales recently upheld the priority
given to investors over the rights of Lehman Brothers as a swap
counterparty in a credit-linked note structure. This means that, as
a matter of English law, Lehman Brothers' default under the
swap will cause it to rank behind the investors on the application
of the collateral which secures the amounts owed to the investors
and Lehman Brothers.
The decision is significant because the contractual provisions
providing for noteholder priority that the court found to be valid
under English law are commonly used in rated and other structured
finance transactions. The decision is also a key factor in
determining the value of the product known as "Lehman
Minibonds" which were widely distributed in a number of
jurisdictions (including Hong Kong).
