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Bankers win court battle for the future of lending

A recent UK court judgment has stopped minority lenders blocking a workout because it is not in their interests. Rob Mannix explains why the ruling is good news for the banking industry

On the face of it, Redwood Master Fund has every right to be upset. An English court has forced it and other minority investors to accept a restructuring deal struck between their fellow lenders and a troubled borrower, Dutch cable company United Pan-European Communications (UPC).

The deal would force Redwood and the other funds to lend ?30 million to UPC so it could pay back other creditors. It is a decision that the funds' lawyer, Tony Horspool of Cadwalader Wickersham&Taft, calls "taking money out of the pockets of one set of lenders and putting it into the pockets of others".

In fact, a win for the funds would have frozen the syndicated lending market. If the judge had sided with minority investors on this case, any disgruntled creditor could have held its fellow bankers to ransom whenever a loan's terms needed tweaking. On complicated deals, waivers and consents are negotiated frequently. And, at any time, one or more lenders might wish they could exit a deal.

Renegotiations became necessary for UPC after its parent defaulted on debt repayments. This triggered a credit event on UPC's loans, to which Redwood and other funds had bought exposure.

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