Landesbank Hessen-Thuringen Girozentrale & Ors v Bayerische Landesbank, London Branch & Anor
2014
COMMERCIAL COURT
United Kingdom
CORAM
- THE HONOURABLE MR JUSTICE FLAUX
Areas of Law
- Contract Law
- Banking and Finance Law
2014
COMMERCIAL COURT
United Kingdom
CORAM
AI Generated Summary
This case concerns the interpretation of clause 9.7 of a Facility Agreement involving a £396 million loan facility for the purchase of the Gherkin in London. During financial difficulties, the Borrowers faced potential early termination of Hedging Agreements, raising disputes over the distribution of break gains. The court ruled that 'Facility Agent' in clause 9.7(a) solely referred to BLB in its capacity as Facility Agent, not Hedging Lender. Therefore, hedging-related payments do not get priority over other Lenders.
Judgment
The Honourable Mr Justice Flaux :
Introduction and background
This is the judgment on a Part 8 claim concerned with the construction of a Facility Agreement under which the claimant banks and the defendant were Lenders under a £396 million loan facility in relation to the financing of the purchase of 30 St Mary Axe London EC3 (better known as “the Gherkin”) by the Borrowers from Swiss Re. The Borrowers are various entities representing a joint venture between IVG Immobilien, a German real estate group and Evans Randall, a UK investment banking and private equity group.
The Facility Agreement was originally dated 21 February 2007 but amended and restated on 29 June 2007. Prior to syndication of the loan in July 2007, the parties to the Facility Agreement were 30 St Mary Axe Limited Partnership and others as Borrowers, 30 St Mary Axe Limited Partnership as Guarantors, Bayerische Landesbank (to which I will refer as “BLB”) in its capacity as Arranger, BLB in its capacity as Facility Agent, BLB in its capacity as Security Agent and, because at that stage BLB was the only Lender, BLB in its capacity as Lender. Thus, although at that stage BLB was the only Lender, by its terms the Facility Agreement drew a clear distinction between the various capacities in which BLB was acting.
The claimants are members of the Sub-Syndicate who became Lenders under the Facility Agreement upon syndication effective on 16 July 2007. The Facility Agreement required the Borrowers to enter into a series of interest rate swaps (“the Hedging Agreements”) to manage interest rate risk during the term of the loan with the Hedging Lender defined as BLB or any other Lender which became a Hedging Lender. Although BLB as Hedging Lender was not a separate party to the Facility Agreement, at various places the Facility Agreement recognises that it was also acting in the capacity of Hedging Lender.
There are six Hedging Agreements between the Borrowers and BLB as Hedging Lender entered on 16 February 2007 which incorporated, as is usual, the terms of the ISDA Master Agreement. Because of the significant fall in interest rates since February 2007, the Borrowers are significantly “out of the money” under the Hedging Agreements, to the extent that if early termination occurred now, the Borrowers would be liable to pay the Hedging Lender some £138 million as break gains. This is not a matter which has troubled the parties until the recent past, since the Borrowers were performing the