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NZ Super Fund, other investors seek US$612.7 million over Oak Finance loan in UK courts

13 Apr 2015

A debt recovery claim filed in the UK courts by the New Zealand Superannuation Fund and 11 other claimants against Portugese bank Novo Bank is demanding repayment of US$612.7 million including default interest. Of that, some US$155 million is owed to the New Zealand fund.

The statement of claim filed in late February has been made public today and action is also to be filed "imminently" by the Oak Finance investors in Portugal against the Bank of Portugal.

The NZ Super Fund is joined in the Portugese action by Avenue Capital Group, Elliott Management Corp, Karrick Ltd, Silver Point Capital, FFI Fund, Olifant Fund, and TDCPensionskasse.

The institutions and pension funds invest globally directly or indirectly on behalf of pensions, taxpayers and other beneficiaries and are seeking to overturn a December decision by the Portugese central bank to unexpectedly reverse the fate of a US Oak Finance loan made to Banco Espirito Santo weeks before the Portugese lender collapsed amid fraud allegations.

The debt recovery claim is in US dollars to reflect the payment obligations under the loan facility.

The four-year loan was arranged by investment bank Goldman Sachs through a finance vehicle called Oak Finance Luxembourg SA which issued bonds to investors in July last year. The US$784 million in bonds were secured against the US$834 million loan obligation from BES.

It helped Portugal's second-largest bank finance a refinery in Venezuela owned by local oil company which was a major creditor of the bank. Goldman Sachs intended to sell down most of the loan through Oak Finance but ended up being stuck with some of the debt.

Less than a month after the bonds were issued, Bank of Espirito's financial situation worsened and its chief executive detained for questioning on suspicion of fraud and money laundering. In August the Bank of Portugal reorganised BES's operations and assets, including all senior unsecured debt, to a new state-supported "good" bank called Novo Banco which is now named as the defendant in the debt recovery proceedings.

The Bank of Portugal changed its mind about including the Oak Finance loan to Novo Banco after deciding interactions by any party that had held two percent or more equity in BES in the two years preceding the transfer to the good bank would remain with the bad bank.

In December it re-transferred the Oak Finance loan back to BES with retrospective effect and reaffirmed that view earlier this year. The central bank's position is that Goldman Sachs, as a shareholder above that 2 percent threshold, shouldn't benefit from a bailout through claims it is owed.

The debt recovery statement of claim says Goldman Sachs didn't have such a shareholding and didn't fallen within that section of the banking law because the bonds were held by the special purpose vehicle Oak Finance. It also said that Bank of Portugal's claim that the loan transfer to the new bank had not occurred in August "was wrong", citing an email from Novo Banco's legal department to Goldman Sachs stating confirmation of the transfer on Aug.3.

Novo Banco failed to pay the payment due to Oak Finance on Dec.29, meaning a default had occurred and relief is now being sought with default interest added on, the claim said.

The super fund has valued the loan as worthless even though its pursuing it through the courts and wrote off two-thirds of the amount in its December performance figures and the following third in its January figures.

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