Collateral and credit support

This Overview is a guide to the Banking & Finance content within the Collateral and credit support subtopic, with links to appropriate materials.

Financial derivative transactions contain a number of risks, two of which are common to most forms of transactions. The first risk is that the other party will not pay what is due, or otherwise perform its obligations. In a worst case scenario, this would be due to that party’s insolvency. The second risk occurs in financial derivative transactions that provide for regular payment dates during the life of the transaction but in the periods between those payment dates, amounts are due but not payable until that date: this creates a credit exposure with a risk that the insolvency of one party before the next payment date means that the other party cannot recover what was due to it for that period.

As with other forms of credit risk, the exposed party will look to the other party to provide an acceptable form of security in order to remove or reduce that risk. This is common where one party may have a stronger credit status

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Commission publishes proposed reforms to EU securitisation framework in impact assessment

The European Commission has published an impact assessment on proposed amendments to EU securitisation regulations. The assessment focuses on modifications to Regulation (EU) 2017/2402 and Regulation (EU) No 575/2013, addressing overcorrection in the post-Global Financial Crisis framework. While the current stringent rules have enhanced market security, the evaluation concludes that they have also stifled market development and rendered securitisation expensive and unappealing due to the high prudential requirements.

Whose money is it? Bondholders allowed to join claim relating to bond proceeds (Eraaya Lifespaces v Elara Capital et al [2025])

Banking & Finance analysis: This case involved, among other things, (a) an application by an issuer of bonds for an interim injunction to require a financial adviser to issue a confirmation email to the settlement agent to compel the settlement agent to transfer bond proceeds it held to the issuer, and (b) an application by the bondholders to join the proceedings to oppose the injunction application. The court denied the injunction application on the basis that, among other things, the issuer’s case against the financial adviser was arguably ‘far from strong’ and that, given the issuer’s precarious financial condition and other relevant factors, damages would not appear to be an adequate remedy for the bondholders if it was later determined that the injunction should not have been granted. The court granted the bondholders’ joinder application in part on the basis that the bondholders had arguably demonstrated that the bond proceeds were held in trust on their behalf by the settlement agent. Written by Robert Aulsebrook, senior counsel at Akin Gump LLP.

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The Supreme Court tweaks Etridge (Waller Edwards v One Savings Bank plc)

Property Disputes analysis: English property law periodically produces epoch-making decisions of the highest court. In years to come, Waller Edwards v One Savings Bank plc may well become such a decision. It enjoys the respectable jurisprudential lineage of three famous House of Lords’ decisions: Barclays Bank v O’Brien, CIBC Mortgages v Pitt, and Royal Bank of Scotland v Etridge, but it also applies established principles in a novel way. Written by Marc Beaumont, Windsor Chambers.

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