Vol 14 (2017) - Issue 4

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GSO Credit – A Partners LP & Ors v Barclays Bank Plc [2016] EWHC 146 (Comm)

Introduction
This case arose from a dispute over the settlement amount payable following the sale of a position under a surety bonds facility by an insurance company ('HCC') to a number of funds (together, 'GSO') via an intermediary bank: Barclays Bank Plc ('Barclays'). The sale was conducted under the Loan Market Association Standard Terms and Conditions for Par and Distressed Trade Transactions dated 14 May 2012 (the 'LMA Terms').

Factual background
Codere manages various gambling ventures, including casinos, horse racing tracks and gaming machines, in Latin America, Italy and Spain. To raise finance for its business, Codere entered into a senior facilities agreement dated 19 October 2007 (the 'SFA'). Under the SFA, Codere and certain of its subsidiaries were provided with:
(1) a revolving credit facility;
(2) a letter of credit facility; and
(3) a surety bonds facility (the 'Surety Bonds Facility').

Codere needed the Surety Bonds Facility because various municipal authorities in Spain and Italy required Codere to issue surety bonds to them as guarantees for Codere’s payment obligations under the gaming licences granted to it. HCC was the lender under the Surety Bonds Facility and had agreed to issue surety bonds up to the sum of €40 million at the request of the various borrowers under the SFA.
As at 7 June 2013, HCC had issued surety bonds to third parties with a face value (i.e. a potential exposure) of €23,790,371.45 (the 'Issued Surety Bonds'). Under the SFA, Codere indemnified HCC for any monies it paid under the Issued Surety Bonds and HCC’s right to reimbursement was a secured obligation of Codere. As at 10 June 2013, no demands had been made under the Issued Surety Bonds and consequently no cash had actually been paid out by HCC. In around April/May 2013 various efforts were being made to achieve a restructuring of the SFA, which was due to mature on 15 June 2013. It was in this context that GSO, which already had some exposure to Codere, considered acquiring HCC’s position under the Surety Bonds Facility.
Discussions regarding the acquisition of HCC’s position under the Surety Bonds Facility took place between GSO and HCC. The commercial deal which was settled on was that GSO would purchase HCC’s position under the Surety Bonds Facility at a price of 76 cents /€1.
Due to the need to complete the transaction before the termination of the SFA on 15 June 2013 and the fact that GSO could not trade with HCC without completing various regulatory checks, it was agreed that Barclays would act as an intermediary and that the transaction would be effected by back-to-back trades entered into between HCC and Barclays and between Barclays and GSO respectively.
On 7 June 2013, GSO agreed to buy and Barclays agreed to sell in total a €23,790,371.45 portion of the commitment under the Surety Bonds Facility at a price of 77.125 cents/€1 (the 'GSO Trades').
Also on 7 June 2013, a corresponding agreement was reached whereby Barclays agreed to buy HCC’s position under the Surety Bonds Facility at a price of 76 cents/€1 (the 'HCC Trade'). The difference in price between the GSO Trades and the HCC Trade represented Barclays’ commission for acting as intermediary.
The HCC Trade was documented in an LMA trade confirmation executed by Barclays and HCC on 10 June 2013 and the GSO Trades were similarly documented in LMA trade confirmations dated 11 June 2013.