Tuesday, August 14, 2007

Is this any way to make a living?

The Bank of New York (“ BNY” ), indenture trustee for the interests of investors who purchased asset-backed securities from a trust established by the now-defunct NextBank, N.A. (“ NextBank” ), is suing the estimable redacted party (“redacted party” ) for conversion based on actions the agency took as NextBank's receiver. Five of BNY's original six counts have been dismissed. Count VI, the sole remaining claim, concerns a contract provision promising the investors (“ Noteholders” ) recovery of their investments at an accelerated rate upon the appointment of a receiver for NextBank. BNY contends that, in declining to honor this early amortization or “ ipso facto” clause, the redacted party acted without authority under the Financial Institutions Reform Recovery and Enforcement Act of 1989 (FIRREA), Pub.L. No. 101-73, 103 Stat. 183.

The issue before the Court is one of first impression. Essentially, BNY argues that the structure of the NextBank securitization transaction was crafted so that NextBank was not a party to the contract (the “ Master Indenture” ) containing the ipso facto clause and that, as a result, the redacted party exceeded its powers under U.S.C. § 1821(e)(12)(A) FN1 -and thereby converted millions of dollars belonging to the Noteholders-when it refused to honor the ipso facto clause upon NextBank's failure. The redacted party counters that BNY's securitization transaction is not immune from the redacted party's statutory powers providing that the redacted party as receiver may exercise its power to enforce an agreement notwithstanding an early amortization clause triggered by the appointment of a receiver, because NextBank “ entered into” the agreement within the meaning of Section 1821(e)(12)(A). For the reasons set forth herein, the Court concludes that the early amortization clause is unenforceable against the redacted party and that, therefore, judgment will be entered for the redacted party on Count VI.FN2

I always dreamed as a boy of waking up and reading stories like that . . .

whisked away to far-off lands, I was.

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