May 2013

So Eurosail-UK 2007-3BL plc (Eurosail) is not ‘balance sheet’ insolvent, no event of default has occurred under the RMBS notes it has issued and a post-enforcement call option (PECO) does not make limited recourse any of the notes it relates to.

Those are the conclusions of the Supreme Court (see here) after it substantially re-affirmed the judgments of both the High Court and the Court of Appeal in the case of BNY Corporate Trustee Services Ltd v Eurosail UK 2007-3BL and others.

Facts

For those unfamiliar with the facts, the case concerned an attempt by certain A3 noteholders to have an event of default under the notes declared on the basis that Eurosail was balance sheet insolvent due to, amongst other things, losses incurred as a result of the lack of currency swaps originally provided by Lehman Brothers.  The key argument being that the audited balance sheet of Eurosail showed an excess of liabilities over assets and that losses from the loss of the currency swaps could not realistically be recovered. 
Continue Reading ‘Point of no return’ is not the point says Supreme Court