US distressed debt investors and corporate litigants are preparing to sue the Swiss government over the decision to write down about $17 billion in Credit Suisse bonds, the Financial Times reported.
The Swiss government cut AT1 bonds to zero, even as it struck a deal for UBS bank to pay $3.25 billion to shareholders, angering bond investors.
David Tepper, founder of Appaloosa Management, told the British newspaper that, if this is left as it is, “how can you trust any debt security issued in Switzerland or Europe, if governments change the laws after the fact?”
Appaloosa bought a series of Credit Suisse senior and junior debt as the bank descended into chaos.
According to the newspaper, some of the law firms that would represent the bondholders would be Quinn Emanuel Urquhart & Sullivan and Pallas Partners. Yesterday, around 750 participants gathered.
One of Quinn Emanual’s partners, Richard East, told the Financial Times that the deal was a resolution disguised as a merger.
You know something has gone wrong when other regulators come along and politely point out that in a resolution they would have respected ordinary priorities.”
Among the possible avenues they can resort to are challenges to the actions of the regulator Finma for violation of property rights, in this case of investors, as well as arbitrary exercise of discretion.
AT1 bonds, a $275 billion sector known as contingent convertible bonds or “CoCos,” act as a buffer if a bank’s capital levels fall below a certain threshold. They can be converted into capital or amortized.
(With information from Agencies)
