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HSBC Trust to Seek US Legal Advice on Minibond

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.

Article in Hong Kong on this issue

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.

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4 comments
Minibond Restructuring No Longer Possible says 10 years ago

[…] the legal dispute which were raised by US lawyers on the unwinding of the Minibond, it appears that plans to restructure the Minibond has been derailed as […]

Reply
pisceshk says 10 years ago

About mini bond, It has two major flaw. Please let me know if you agree.

1. Omission of material fact. That is, the mini bond distributor (i.e. retail banks) and the Issue Prospectus never explained what is CDO, and what is the Synthetic CDO (many Prospectus mentioned that the collateral is actually Synthetic CDO) .
For a product like mini bond / or credit-linked notes, it has no really underly assets, other than CDO collateral. The banks (i.e. sellers) and the prospectus owe it to the investors to explain what is the CDO, what kind of underlying securities consists of CDOs. What is the Synthetic CDO, what consists of Synthetic CDO. Then need to disclose material fact about CDO or Synthetic CDO, and disclose the related risk of CDO or Synthetic CDO.
In summary, both banks (as sellers) and prospectus omitted the material fact of CDO / Synthetic CDO, and omitted the material risk of the CDO / Synthetic CDO.

2. Collateral.
Now when banks trying to buy back the Collateral, legal issues happens as per notice from HSBC USA as Trustee.
The question are:
– how can banks sell a notes that they do not have access to the notes’ collateral? have they done reasonable diligence prior to the
selling of the products?
– how much did banks know about the collateral of the notes/mini bond? they seems not awaring the fact that they don’t have access to the collateral as their wish. what happened now is the proof.

Does anyone agree with me ? It would be great if we can get someone from legal on the above view.

Reply
Ryan says 10 years ago

MAS and HSBC should act in the interest of the noteholders. They must on the behalf of the noteholders try to block this motion. I am writing to MAS to urge them to lead us to counteract on this. The noteholders are the most vulnerable we cant be left to be slaughtered in this way.

Please investors write in and complain. The 3 steps procedure that MAS has ask us to follow is not working. I know ppl are discouraged but please do what we can for the very minimum.

Reply
Johnson says 10 years ago

Does that mean we will be having problem having a new arranger? I though some of the banks already buy back the minibond from those 62 yrs above? Why hongkong cannot buy back and singapore can?

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