Magazine article American Banker

$3M Verdict for Credit Agricole in 'Swaption' Case against CBI

Magazine article American Banker

$3M Verdict for Credit Agricole in 'Swaption' Case against CBI

Article excerpt

In one of the first cases involving the repudiation of a derivatives contract, the U.S. District Court in Chicago has awarded more than $3 million in damages to a French bank spurned in a "swaption" deal.

The decision in the case of Caisse Nationale de Credit Agricole against CBI Industries Inc. is seen by some derivatives lawyers as having a calming effect on a market racked by turmoil in the past year.

"It adds certainty to the market," said Thomas Doyle, a partner in the Chicago office of Baker & McKenzie, the law firm representing Credit Agricole. "When a counterparty claims they did not enter into a transaction, participants now know that at least in the Northern District of Illinois, they can sue to recover damages in accordance with the industry standard formula."

The case involves a swaption transaction between the French bank and CBI's Netherlands-based subsidiary, Chameleon Finance Co. The deal covered a Canadian dollar interest rate swap with notional value of $35 million Canadian which ran between Feb. 18, 1991, and Jan. 16, 1994.

At the same time, CBI sold Credit Agricole an option to extend the contract another two years in exchange for a 26-basis point adjustment to the interest rates involved in the swap.

According to court documents filed by CBI's attorneys, Bell, Boyd & Lloyd of Chicago, confirmation given for the option contract specified Canadian business days would govern the swap, but was silent as to what governed the option. …

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