DALLAS (CN) – Highland Capital Management claims in court that Citigroup is trying to remove it as portfolio manager of a $900 million collateralized loan obligation, so Citi can book profits from its discounted purchase of CLO debt from its own clients and investors.
Dallas-based Highland Capital Management sued Citigroup Global Markets, Babson Capital Management and Bank of New York Mellon Trust, in Dallas County Court.
Highland claims Citigroup, as underwriter of the CLO, improperly used confidential information on the structure of the CLO and the identity of investors to buy more than half the outstanding debt from investors “at a deep discount and now wanted to cash in.”
Highland claims it refused the request because sale of the collateral would not be sufficient to redeem the outstanding notes; would have violated agreements in place; and would have adversely affected other certificate holders.
“Undeterred, Citi decided to force the liquidation of the Liberty CLO by seeking to remove Highland as portfolio manager and replace it with Babson, one of Citi’s clients,” the complaint states. “Unlike Highland, Babson had apparently agreed to comply with Citi’s request for liquidation, in violation of the terms of the CLO agreements and in disregard of the interests of the other certificate holders.”
Highland claims Citigroup does not have a 66.6 percent supermajority of certificates, which is required before it can remove the portfolio manager.
It claims that in spite of this, the CLO issuer has served notice on Highland that it has been removed.
Founded in 1993 by James Dondero and Mark Okada, Highland is the largest CLO manager in the country, with $20 billion in assets under management, according to its website.
Highland seeks damages for tortious interference with contract, civil conspiracy, and aiding and abetting.
It is represented by Lewis LeClair with McKool Smith in Dallas.