Interpreting ‘default’ interest rates relating to Class X notes (Credit Suisse Asset Management v Titan 2006-1 and others)

Interpreting ‘default’ interest rates relating to Class X notes (Credit Suisse Asset Management v Titan 2006-1 and others)

Chris Webber, partner at Squire Patton Boggs, considers the appeal case of Credit Suisse Asset Management v Titan 2006-1 and others which dealt with an interpretation of the correct ‘default’ interest pertaining to Class X notes.

Original news

Credit Suisse Asset Management LLC v Titan Europe 2006-1 plc and others; Credit Suisse Asset Management LLC v Titan Europe 2006-2 and others [2016] EWCA Civ 1293, [2017] All ER (D) 19 (Jan)

The Court of Appeal, Civil Division dismissed the appeal of the claimant Credit Suisse. In so doing it agreed with the trial judge that in coming to the proper interpretation of a trust deed and conditions by which notes (including Class X and Class A to H notes) were issued in four securitisation structures, no account should be taken of additional interest following a default under the loans, only of the interest rate ordinarily payable by the borrower.

What was the appeal about?

Credit Suisse Asset Management (CSAM) was the originator of Titan 2006-1, a commercial mortgage-backed securitisation (CMBS). The Titan 2006-1 SPV (Titan) issued eight tranches of bonds (A to H) for a total of €723m. It used the proceeds to acquire commercial real estate loans from CSAM.

Like many CMBS structures of that vintage, the Titan CMBS had a structural feature called ‘Class X notes’. These were a small (€50,000) tranche of bonds that ranked ahead of the other tranches in certain respects and bore a special variable rate of interest. Their purpose was to ensure that if Titan was due to receive more in interest from the loans than it owed to the tranche A to H bondholders, that ‘excess spread’ would be paid to the Class X noteholder (which was CSAM). In other words, the Class X notes allowed CSAM to extract any surplus interest from the loans it had securitised, rather than leave it trapped in

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About the author:

Meet Emma:

1.Banking and finance lawyer with experience in derivatives, debt capital markets, securitisation and structured finance in London and Paris

2.Likes ballet, playing the harp and holidays

3.Thinks the law is always changing!

Emma trained and qualified at Allen & Overy LLP and worked in their derivatives and structured finance teams in London and Paris.  She then joined the foreign exchange prime brokerage legal team at Deutsche Bank before spending 4 ½ years with Crédit Agricole CIB advising the fixed income and derivatives desk.