It appears that the Hong Kong plan to buy back the Minibond has run into some obstacles. Apparently, HSBC Hong Kong has received a stop order a few days ago from Weil, Gotshal & Manges, Lehman’s bankruptcy counsel.
Complex issues of US bankruptcy law have been raised.
HSBC Institutional Trust Services (Singapore), the trustee for minibonds sold in Singapore, also received legal notice from Lehman Brothers attorneys on Wednesday that any termination of swap agreements underlying the Singapore minibonds would be deemed illegal.
Version 9 of the HSBC FAQ (dated 25 Nov) makes no mention of this yet. Paragraph 18 takes about the legal implications of transfering swaps, but is not exactly the same issue of swap termination.
On 13 November 2008, Lehman Brothers Holdings Inc. and its affiliated debtors in chapter 11 proceedings in New York filed a motion seeking an order that would (a) allow them to assume, sell and assign executory, derivative contracts that have not yet been terminated and (b) permit them to enter into settlement agreements with counterparties under terminated derivative contracts without further approval from the United States courts.
For each series of the Minibond notes, Minibond Limited entered into swap agreements with Lehman Brothers Special Financing Inc.
If a United States court order is granted in connection with the motion above, Lehman Brothers Special Financing Inc. will be allowed, as a matter of United States law, to transfer any open swaps to third parties who wish to acquire them without the need to seek the consent of the swap counterparty.
The swap agreements entered into in connection with the Minibond notes are governed by Singapore law and are subject to the exclusive jurisdiction of the Singapore courts. The trustee understands from its legal advisers that it is highly unlikely that the unilateral transfer of swaps (under any order made pursuant to the motion referred to above) by Lehman Brothers Special Financing Inc without consent from Minibond Limited, would be recognised and enforced as a matter of Singapore law. If this is correct, even if the order was made, noteholders would still have the opportunity to reject any transfer purported to be made under it as and when the transferee sought to assert any rights in relation to the swaps under Singapore law. It is however emphasised that the trustee cannot give legal or other professional advice to the noteholders on this or any other issue and noteholders cannot rely on advice obtained by the trustee. Noteholders may therefore wish to seek independent professional advice with respect to their own positions.
We will have to wait and see how all these unfolds.