Downgrades could derail ABS market revival, threaten corporate investments.
The long shadow of the Lehman Brothers bankruptcy may cause corporate treasurers problems anew in the wake of a US court ruling last week. The bankruptcy court for the Southern District of Manhattan issued a ruling that reversed the liquidation priority mechanism in deals where a swap counterparty goes toes up. Previously, that would have subordinated the swap counterparty's (in this case, Lehman's) claim below noteholders. The court, addressing the status of a credit-linked note program called Dante, said the ipso facto clause of the Bankruptcy Code did not allow it to change the seniority of a claim just because its counterparty became insolvent.