As was common at the time of the inception of the transaction, Danske Bank A/S (Danske) had provided a liquidity facility (LF) on a commercial mortgage-backed securitisation issued by the issuer, Gemini (Eclipse 2006-3) plc (Gemini).  Due to the subsequent plethora of downgrades that have followed the financial crisis (from which the liquidity facility provider did not escape), a liquidity stand-by drawing of £64,000,000 was made by Gemini. The liquidity facility provider was entitled under the liquidity facility to recover any increased costs as a result of the application of Basel II (as implemented in Denmark) to the LF.  A subsequent withdrawal by Moody’s of the separate rating obtained in relation to the LF caused a rise in the increased costs due to Danske being required to set aside more capital for regulatory purposes.
Continue Reading The Liquidity Eclipse