Credit Suisse Asset Management, Llc v 1) Titan Europe 20061 Plc and Others

JurisdictionEngland & Wales
JudgeTHE CHANCELLOR OF THE HIGH COURT,The Chancellor of the High Court
Judgment Date28 April 2016
Neutral Citation[2016] EWHC 969 (Ch)
Docket NumberCase No: HC-2015004153, HC-2015004154, HC-2015004156
CourtChancery Division
Date28 April 2016

[2016] EWHC 969 (Ch)

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

THE CHANCELLOR OF THE HIGH COURT

Case No: HC-2015004153, HC-2015004154,

HC-2015004155 and

HC-2015004156

Between:
Credit Suisse Asset Management, Llc
Claimant
and
1) Titan Europe 20061 Plc
2) U.S. Bank Trustees Limited
3) Elavon Financial Services Limited
4) Attestor Value Master Fund LP
Defendants
And Between:
Credit Suisse Asset Management, LLC
Claimant
and
1) Titan Europe 20062 PLC
2) U.S. Bank Trustees Limited
3) Elavon Financial Services Limited
Defendants
And Between:
Credit Suisse Asset Management, LLC
Claimant
and
1) Cornerstone Titan 20071 PLC
2) U.S. Bank Trustees Limited
3) Elavon Financial Services Limited
Defendants
And Between:
Credit Suisse Asset Management, Llc
Claimant
and
1) Titan Europe 20072 Plc
2) U.S. Bank Trustees Limited
3) Elavon Financial Services Limited
Defendants

Benjamin Strong QC (instructed by Sidley Austin LLP) for the Claimant

Stephen Robins (instructed by Reed Smith) for the First Defendant

David Head QC (instructed by K&L Gates LLP) for the Second Defendant

Robert Miles QC and Mr Andrew de Mestre (instructed by Allen & Overy LLP) for the Third Defendant

Sue Prevezer QC and Alex Barden (instructed by Quinn Emanuel Urquhart & Sullivan (UK) LLP) for the Fourth Defendant

Hearing dates: 11th – 13th April 2016

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

THE CHANCELLOR OF THE HIGH COURT The Chancellor of the High Court

The Chancellor of the High Court

1

This is my judgment in four sets of proceedings, each of which concerns the proper interpretation of notes in a securitisation structure ("the Notes"). Each of the four structures ("Titan 2006–1", "Titan 2006–2", "Titan 2007–1" and "Titan 2007–2") involves the securitisation of loans secured on commercial properties ("the Loans"). The documents constituting the four transactions are materially the same. Each set of proceedings raises the same issues of interpretation, all of which relate to payments due on the Class X Notes of the series.

2

For convenience, and by way of illustration, the parties made submissions by reference only to Titan 2006–1. Save where I have otherwise stated, the figures and provisions mentioned below relate to that structure.

3

The proceedings are against a background of extensive default on the Loans, with some €20 million in default interest having accrued since 2011, of which only €3,000 has been paid.

The parties

4

The claimant in the four sets of proceedings is Credit Suisse Asset Management LLC ("CSAM"), which is the investment manager of a fund which holds the Class X Notes in the structure and represents the interests of the investors in that fund.

5

The first defendant in each action ("Titan" or "the Issuer") is the issuer of the relevant Note series. The second defendant, U.S. Bank Trustees Limited ("the Trustee") is the Note trustee. The third defendant, Elavon Financial Services ("Elavon" or "the Agent Bank"), is the agent bank whose responsibilities include calculating the interest due to Noteholders. The fourth defendant, Attestor Value Master Fund LP ("Attestor"), owns some of the Class B Notes in Titan 2006–1.

The structure

6

Titan is a special purpose vehicle, which was incorporated for the sole purpose of securitising the Loans made by Credit Suisse International ("the Originator"). Titan has two issued shares of one Euro each, which are held by the two shareholders as trustees of a charitable trust.

7

All the Loans provide for the payment of interest at a fixed rate, except for one on which interest is due at Euribor plus 1.7%. Interest, and instalments of principal if applicable, are payable on the 18 th day of January, April, July and October. The Loans have maturity dates ranging from 18 July 2010 to 18 October 2012. The Loan contracts and the related credit agreements in Titan 2006–1 are governed by German and English law (and in Titan 2006–2, Titan 2007–1 and Titan 2007–2 are governed by English, Belgium, Dutch, French, Swiss, and Finnish law, and some are not in English). They do not have identical terms.

8

The Originator assigned the Loans to Titan.

9

The Notes were constituted by a trust deed ("the Trust Deed"), which sets out the terms and conditions ("the Conditions") of the various classes of Notes.

10

The total principal amount of the Notes at the start of the transaction was €723,303,029. All but €100,000 related to the Class A to H Notes. The remaining €100,000 is split equally between the Class X Notes and the Class V Notes. The maturity date of all of the Notes was 25 January 2016.

11

The Conditions provide that interest is payable on the Notes quarterly in arrears on 23rd day of January, April, July and October in each year.

12

Until default in the payment of principal due on them, the Class A-H Notes are entitled to interest at a margin over three month Euribor, ranging from 0.19% for the Class A Notes to 3.75% for the Class H Notes. In the event of such a default, the Trust Deed provides for the rate of interest to be that on "judgment debts", if higher.

13

The Class A-H Notes were assigned S&P/ Moody's ratings on a descending scale, ranging from AAA/Aaa for the Class A Notes to B/NR for the Class H Notes. Those ratings were published in the Offering Circular.

14

The proceeds of issue of the Class A-H Notes funded the acquisition of the Loans from the Originator. The principal balance of the Loans was the same as the principal amount of the Class A-H Notes. The outstanding principal of the Class A-H Notes reduces as the principal of the Loans is repaid or becomes irrecoverable. Titan hedged its position by entering into swap agreements in respect of each of the fixed rate Loans so that it would receive from the swap counterparty a Euribor-based rate in respect of each such Loan.

15

The Class X Notes and the Class V Notes are different in nature from the Class A-H Notes. It is not necessary to say anything further about the Class V Notes.

16

The Class X Notes were intended to provide what has been described by some of the parties (other than CSAM) as a "fee" for the Originator and lead manager rather than a return on the capital value of the Notes. The initial principal amount of the Class X Notes was a nominal amount of €50,000. That was paid into a segregated account ("the Class X Account"), the sole purpose of which is to hold the subscription money for the Class X Notes until those Notes are redeemed. The Class X principal is secured by a first charge on the Class X Account. The Class X Notes bear interest at "the Class X Interest Rate" as defined in Condition 5(c) of the Notes. That definition is set out in the Annex to this judgment. Between April 2006 and January 2016 the Class X Interest Rate ranged from 9,024 per cent to 114,508 per cent.

17

Schedule 6 of the cash management agreement sets out the priority order (or "waterfall") for payments out of the Collection Account, which, among other things, holds interest earned on the Loans and any principal received on the Loans in the quarter. First in the order is payment "pro rata, [of] all interest due or overdue and payable on the Class A and Class X Notes together with interest thereon". The broad effect of that and the other waterfall provisions is that payment of interest on the Class A Notes and the Class X Notes ranks equally and in priority to all other payments of interest and principal to Noteholders; Class A principal ranks behind Class X interest and before Class B interest, which ranks before Class B principal and so on in descending order of priority from Class B to Class H. At the very end of the priority order is provision for any surplus to be paid to the Issuer and, if the directors of the Issuer so resolve and may lawfully do so, payment of dividends to the Issuer's shareholders.

18

The waterfall provisions do not contain any reference to Class X principal because that is paid from the Class X Account and not the Collection Account (and similarly the Class V principal out of the Class V Account).

The issues

19

There are four issues of interpretation of the documents comprised in the Note structure which call for determination in these proceedings ("the Issues"). They are as follows:

(1) When calculating the Class X Interest Rate in accordance with the Conditions, is it necessary to take account of any additional interest due under the Loans following a default?

(2) At what rate is interest to be paid on unpaid interest on the Class X Notes?

(3) In circumstances where any of the Notes (excluding any Class X Notes) are outstanding following their Maturity Date and/or a Note Enforcement Notice has been served, are the Class X Notes to be immediately redeemed by the Issuer with the funds held in the Class X Accounts, or should the Class X Notes instead remain outstanding until all of the other Notes have been redeemed?

(4) In the event that the Class X Notes are not immediately redeemed following their Maturity Date and/or a Note Enforcement Notice has been served and instead remain outstanding, how is the rate of interest that accrues in respect of the Class X Notes to be calculated?

The position of the parties in relation to the Issues

20

At the hearing of the proceedings, each of the parties took the following stance.

21

The Trustee took a neutral position on all the Issues.

22

On Issue 1 CSAM submitted that the answer is affirmative, and Titan, Elavon (which has always calculated Class X interest without taking into account default interest due under the Loans) and Attestor (which has, in effect, argued the case for all the...

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