DALLAS (CN) – A litigation trustee claims that after Barclays Bank created a lending facility, it refused its partners access to it during the 2008 collapse of the collateralized loan obligation market, then charged them a $9.6 million minimum-use fee for not using it.
Scott Trustee Services, as Trustee for the Beta Litigation Trust, sued Barclays Bank and the Grand Central Asset Trust – HCDO Series. The trustee claims that in June 2007 Barclays “entered into a number of related agreements with Beneficiaries of the Litigation Trust … and their affiliates, which, in effect, created a lending facility between the Beneficiaries and Barclays.”
“In September and October of 2008,” the complaint continues, “during the height of the market crisis, Barclays made a concerted effort to remove itself from that lending facility and take whatever profit it could at the expense of the Beneficiaries and their affiliates. Barclays’ efforts included taking actions designed to artificially inflate margin calls the beneficiaries had to meet related to the lending facility, which ultimately facilitated and accelerated the termination of that facility.
“Through its efforts, and its unwillingness to consider viable options to maintain the facility, Barclays effectively orchestrated the demise of the lending agreement between the Beneficiaries and Barclays. Subsequently, even though Barclays effectively caused the termination of the parties’ lending facility, it took additional actions in which it forced the beneficiaries to pay a $9.6 million fee for not utilizing the lending facility that Barclays had caused to be terminated.
“Barclays forced the Beneficiaries to pay the $9.6 million fee by threatening to sell assets held as collateral for the loan – assets that were valued at many times the amount of the fee Barclays was trying to extract from the Beneficiaries and, if sold, would result tens of millions of dollars in loss to the Beneficiaries.”
The trustee sued on behalf of Highland CDO Holding Co. and Highland COD Trust.
It seeks compensatory and punitive damages for breach of contract and breach of faith and fair dealing. It is represented in Dallas County Court by Paul Lackey with Lackey Hershman of Dallas.