Perpetual Trustees Achieves Important Milestone For Mahogany Capital Noteholders

Perpetual Trustees achieves important milestone for Mahogany Capital noteholders

Perpetual Trustees (PTCo) came a step closer to recovering the $125 million frozen from Mahogany Capital (Mahogany) noteholders since the collapse of Lehman Brothers, following its second successful court ruling in the United Kingdom last night (Australian EST time).

PTCo commenced legal proceedings six months ago against the UK-based BNY Corporate Trustee Services (BNY) to recover "collateral" which could be used to repay Mahogany noteholders.

The UK Court of Appeal has ruled that Mahogany noteholders have priority over Lehman Brothers Special Financing, Inc (LBSF) in relation to the collateral under English Law. The Court rejected arguments put by LBSF that they should have priority over the collateral.

In July, the High Court of England and Wales also rejected LBSF's arguments, triggering the initial appeal.

While the latest decision is a positive step towards distributing the collateral to Mahogany investors, it remains to be seen whether BNY will now release it for distribution. LBSF has sought permission to pursue a further appeal, this time to the UK Supreme Court. Separately, LBSF is also moving to obtain a parallel judgment in the US, creating further uncertainty for Mahogany noteholders.

Group Executive Perpetual Corporate Trust, Mr. Chris Green, said PTCo's single objective was to ensure the best possible financial return to the Mahogany noteholders in what has become a complex and multi-jurisdictional legal environment.

"While the decision by the Court is a significant milestone in the recovery process, PTCo could be frustrated by yet another appeal from LSBF and their insistence in pursuing separate court action in the US," he said.

"PTCo will continue to vigorously fight for the release of the collateral to Mahogany investors as it has done for the past six months."

BACKGROUND

The PTCo proceedings relate to credit linked notes issued by Mahogany and sold in Australia to retail investors for $125 million by Grange Securities, a wholly-owned subsidiary of Lehman Brothers, which is now in Chapter 11 bankruptcy in the United States of America.

The money raised by Mahogany from the retail investors was used to purchase notes issued by Saphir Finance plc, a UK special purpose vehicle. Saphir's obligations under the notes are supported by a parcel of "collateral" comprised of bank-issued medium term notes. This collateral is held by BNY on trust for a number of creditors, including the Mahogany noteholders. Saphir's other main investment is a credit default swap arrangement with LBSF.

Lehman Brothers Holdings, Inc (Lehmans) the parent entity of LSBF, had guaranteed it would meet the financial obligations of LBSF under the credit default swap. However, both LBSF and Lehmans defaulted on their obligations when they entered Chapter 11 bankruptcy. Following the bankruptcies, payments to Mahogany and Mahogany noteholders stopped. Perpetual commenced legal action against BNY who had failed to release the collateral to Mahogany investors due to pressure from Lehman Brothers.

As BNY is the holder of the collateral, BNY is the only entity PTCo can pursue to recover investor funds. Given BNY's UK-base, the fact that the collateral is located in the UK and all the relevant legal documents are governed by English law, the only forum for any action against BNY was in the UK courts.

For further information, please contact:

Chris Green 02 9229 9861
Chris Newlan 0407 881 139

SOURCE: Perpetual