All items from Kieselstein

When the Texas bankruptcy judge reviewing the Vitro plan of reorganization recently enjoined state court collection proceedings by certain of the Company’s noteholders, he left unaddressed the Company’s allegations that the holders had leaked confidential information to scuttle the plan in violation of a non-disclosure agreement that the holders claim they never actually signed.
For a distressed investor seeking to remain on the “public side” of a given credit,1 not executing an NDA does not assure that you won’t be bound by it.  An NDA binding upon, though not executed by, an investor may, for example, have been executed by an agent acting within the scope of its previously-granted authority.  This occurs when a financial advisor engaged by an agent bank shares with its lending group confidential financial information obtained from the borrower under an NDA that expressly binds recipients of the information to the NDA’s terms.

Below, my preliminary notes from the LSTA’s 16th Annual Conference on November 2, 2011.
4:47 PM
Breakout session on Material Non-public Information in the Syndicated Loan Market. Best practices are under pressure due to occurrences in the market, including especially the desire for increased transparency. History of LSTA involvement on MNPI. Sophisticated party expectation of unequal information of parties trading loans. Syndicate Level Information discussed. Sources of authority: state asset protection rules, federal securities laws. Big boy provisions as “contractual disclaimers of reliance” that operate by reverse engineering a fraud claim. Limits on effectiveness of same: securities transactions (SEC not require to prove reliance); prohibition against circumventing securities laws; ineffectiveness against breach of fiduciary duty claims unaffected by CDRs; “blockbuster” information (read, Borrower Restricted Information on material issues) arguably unprotectable.

Despite their best efforts, buyers of single-name credit default swaps still sometimes make technical errors when notifying their counterparties of “credit events”1 or other grounds upon which to terminate their contracts. Details required to be included in the notice may have been listed imprecisely; the notice may have been misdated or misdelivered; what the swap documentation requires to be included in the notice may be ambiguous.
For obvious reasons, credit protection sellers that have received a credit event notice are likely to claim that virtually any defect in the notice, no matter how small, renders the notice ineffective and compromises the credit protection buyers’ recourse. The paucity of case law on point may add to credit protection buyers’ reluctance to litigate this issue.
But a recent New York appellate decision suggests that elevating form over substance in interpreting CDS notices with minor defects makes no more sense in the derivatives context than under general contract law.