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England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Napier Park European Credit Opportunities Fund Lt v Harbourmaster Pro-Rata Clo 2 B.V. & Ors  EWHC 1083 (Ch) (09 April 2014)
Cite as:  EWHC 1083 (Ch)
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Strand, London, WC2A 2LL
B e f o r e :
|NAPIER PARK EUROPEAN CREDIT OPPORTUNITIES FUND LIMITED||CLAIMANT|
|(1) HARBOURMASTER PRO-RATA CLO 2 B.V.|
|(2) DEUTSCHE BANK AG, LONDON BRANCH|
|(3) BLACKSTONE/GSO DEBT FUNDS EUROPE LIMITED|
|(formerly known as HARBOURMASTER CAPITAL LIMITED)|
|(4) DEUTSCHE TRUSTEE COMPANY LIMITED||DEFENDANTS|
Mr Nik Yeo (instructed by Clifford Chance LLP) for the First Defendant
Mr Adam Brown, Solicitor Advocate (instructed by Simmons & Simmons LLP) for the Second Defendant
Mr Daniel Toledano QC (instructed by Weil, Gotshal & Manges) for the Third Defendant
Mr Richard Snowden QC and Mr David Allison (instructed by Allen & Overy LLP) for the Fourth Defendant
Hearing date: 25th March 2014
Crown Copyright ©
The Chancellor of the High Court :
The CLO and its documentation
"11.5 Unscheduled Principal Proceeds
(a) During the Reinvestment Period and up to and including the Payment Date in October 2015, the Collateral Manager (acting on behalf of the Issuer) shall use all commercially reasonable efforts to apply the Unscheduled Principal Proceeds received in the related Payment Period with respect to any Collateral Obligation … in the acquisition of further Collateral Obligations satisfying the Reinvestment Criteria, subject to:
(i) no Event of Default having occurred which is continuing; and
(ii) the Collateral Manager certifying to the Trustee that in its professional opinion such Unscheduled Principal Proceeds can be reinvested in further Collateral Obligations which it has identified in compliance with the Reinvestment Criteria."
The Reinvestment Criteria are as follows:
(1) such further Collateral Obligation is a Collateral Obligation which satisfies each of the Eligibility Criteria;
(2) during the Reinvestment Period only, either (i) the Coverage Tests are satisfied after giving effect to such purchase or (ii) if immediately prior to such purchase any Coverage Test was not satisfied, the related value is maintained or improved after giving effect to such purchase provided that, notwithstanding this paragraph, the Coverage Tests must be satisfied upon any reinvestment of Scheduled Principal Proceeds and of Sale Proceeds from Defaulted Collateral Obligations during the Reinvestment Period;
(3) after the Effective Date and during the Reinvestment Period only, either (i) after giving effect to such purchase, the Collateral Obligations in aggregate satisfy the requirements of the Portfolio Profile Tests or (ii) if any such requirement is not satisfied prior to such purchase, such requirement will be maintained or improved after giving effect to such purchase;
(4) after the Reinvestment Period and until the Payment Date in October 2015 only, in the case of the reinvestment of Unscheduled Principal Proceeds, (i) the ratings of the Class A1 Notes have not been downgraded below their Initial Ratings, (ii) all the requirements of Portfolio Profile Tests shall be satisfied both prior to and after giving effect to such purchase, (iii) all the Coverage Tests shall be satisfied both prior to and after giving effect to such purchase; (iv) the expected maturity of the additional Collateral Obligation is not beyond the expected maturity of the Collateral Obligation which was the source of such Unscheduled Principal Proceeds and (v) the Scenario Default Rate for the Proposed Portfolio is equal to or lower than the Scenario Default Rate for the Current Portfolio or where the Scenario Default Rate for the Proposed Portfolio is higher than the Scenario Default Rate for the Current Portfolio, a Rating Agency Affirmation has been received from S&P;"
"Effective Date Rating Event" means:
(a) any of (i) the Effective Date Requirements not having been satisfied as at the Effective Date; or (ii) the Initial Ratings of any of the Notes being downgraded or withdrawn or (iii) any of the Rating Agencies notifying the Collateral Manager on behalf of the Issuer that such Rating Agency intends to reduce or withdraw any of its Initial Ratings of the Notes, in the case of (ii) and (iii), upon request for confirmation of the Initial Ratings by the Collateral Manager, acting on behalf of the Issuer, following the Effective Date; …"
"on the Payment Date following the Effective Date and each Payment Date thereafter to the extent required, in the event of the occurrence of an Effective Date Rating Event which is continuing on the second Business Day prior to such Payment Date, to redeem pari passu and pro rata the Class A1 Notes in accordance with the Class A1 Notes Principal Sequence of Payments, and thereafter, pari passu and pro rata the Class A2 Notes, and thereafter, pari passu and pro rata the Class A3 Notes, and thereafter, pari passu and pro rata the Class A4 Notes, and thereafter, pari passu and pro rata the Class B1 Notes, and thereafter, pari passu and pro rata the Class B2 Notes, in each case, until redeemed in full or, if earlier, until the Rating Agencies confirm the Initial Ratings of the Notes;"
"Redemption upon Effective Date Rating Event
In the event that, as at the second Business Day prior to the Payment Date following the Effective Date and any Payment Date thereafter, an Effective Date Rating Event has occurred and is continuing, the Notes shall be redeemed in accordance with the Priorities of Payment on such Payment Date out of Interest Proceeds and thereafter Principal Proceeds, in each case, until redeemed in full or, if earlier, until the Rating Agencies confirm the Initial Ratings of the Notes. For the avoidance of doubt, the Collateral Manager (acting on behalf of the Issuer) is under no obligation whatsoever to present a Rating Confirmation Plan to the Rating Agencies and may, in its discretion (acting on behalf of the Issuer), determine not to present such plan to the Rating Agencies in favour of redemption of Notes pursuant to this Condition 7(d) (Redemption upon Effective Date Rating Event). For the avoidance of doubt, the redemption of any Class A1 Notes shall be made in accordance with the Class A1 Notes Principal Sequence of Payment."
"10.5 If on the Effective Date no Effective Date Ratings Event has occurred and so long as an Effective Date Rating Event is not continuing and there are amounts standing to the credit of the Unused Proceeds Account, the Collateral Manager may at its discretion, acting on behalf of the Issuer, ensure that such amounts which are to be transferred to the Principal Account are utilised to purchase further Collateral Obligations."
The UPP received since the end of the Reinvestment Period
The commercial reason for the dispute
"A Standard & Poor's issue credit rating is a forward-looking opinion about the creditworthiness of an obligor with respect to a specific financial obligation, a specific class of financial obligations, or a specific financial program (including ratings on medium-term note programs and commercial paper programs). It takes into consideration the creditworthiness of guarantors, insurers, or other forms of credit enhancement on the obligation and takes into account the currency in which the obligation is denominated. The opinion reflects Standard & Poor's view of the obligor's capacity and willingness to meet its financial commitments as they come due, and may assess terms, such as collateral security and subordination, which could affect ultimate payment in the event of default."