July 11, 2018 / 11:58 AM / in 7 days

HSH bondholders seek U.S. help in lawsuit over privatization

FRANKFURT (Reuters) - A number of bondholders in Germany’s HSH Nordbank planning to sue the lender for alleged unfair treatment during its privatization, have asked the United States to issue subpoenas for the bank’s new owners.

FILE PHOTO: The logo of HSH Nordbank is seen in Hamburg, Germany, April 26, 2018. REUTERS/Fabian Bimmer//File Photo

The holders of 900 million euros worth($1.05 billion) of HSH tier 1 instruments said on Wednesday that they had requested the right to serve subpoenas on Cerberus, J.C. Flowers and Goldentree, which bought the bank in February.

As part of the buyout, the same private equity investors also took over a 3.5 billion euro HSH loan portfolio at a discount, prompting writedowns at HSH and hitting the tier 1 instruments.

The bondholders plan to sue HSH in Germany, alleging that no effort was made to market the loan portfolio - mainly bad ship loans - in a competitive process and that the sale of the loans may have been structured to benefit the HSH buyers at the expense of the tier 1 holders.

“The German litigation will focus on whether the tier 1 holders have been subject to improper and unlawful treatment by HSH,” the bondholders said in a statement.

HSH declined to comment.

According to court filings, HSH rejected the claims last month. Cerberus, J.C. Flowers and Goldentree were not immediately available for comment.

In a letter to HSH, which is part of the filings, the bondholders said the loan portfolio was sold at 1.1 billion euros below its book value.

“It appears the (privatization of HSH) is premised on a plan whereby the management of the bank and the purchasing consortium have agreed to subsidize the purchase price to be paid for the bank by stripping value from the bank through selling the loan portfolio below book value”, the letter said.

The nature of the loan sale suggested this part of the deal was a hidden dividend, raising the question of management liability, the bondholders said in the letter, adding: “The transaction may have damaged the bank itself.”

They also allege that HSH Nordbank unlawfully put profits made over the last five years into special reserves, effectively preventing tier 1 bonds from being written up and coupons being paid, and has declined to release any of these reserves since the privatization.

Reporting by Arno Schuetze; Additional reporting by Klaus Lauer; Editing by Alexandra Hudson

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