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ARTICLE · 15 DECEMBER 2021

Capacity Request: Validity Of Swaps Entered Into By Italian Public Authorities

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In Deutsche Bank v Busto [2021] EWHC 2706, the English High Court recently considered the validity of certain swap contracts entered into between an Italian public authority ("Busto")...

United KingdomFinance and Banking
Robyn Llewellyn
Robyn Llewellyn
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In Deutsche Bank v Busto [2021] EWHC 2706, the English High Court recently considered the validity of certain swap contracts entered into between an Italian public authority (“Busto”) and Deutsche Bank AG, London Branch (“DB”). The capacity of public bodies to enter into derivative contracts has been fertile ground for litigation in recent years.

To manage its principal repayment and interest obligations on its indebtedness, in 2007 Busto entered into several swap contracts with DB including a collar transaction involving (i) an exchange of principal, which allowed Busto to reduce its near term repayment obligations, but increasing them towards the end of the term and (ii) DB making fixed and floating payments to Busto corresponding to its interest obligations, with Busto making floating rate payments to DB linked to Euribor, subject to a cap and floor. Following dramatic reductions in Euribor stemming from the global financial crisis, the swaps were heavily out of

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