Weil Gotshal & Manges sued by client over landmark CDO deal

NatWest and Greenwich NatWest claim set to reach $100m; Weil becomes first law firm to face court action over CDOs

Weil Gotshal & Manges sued by client over landmark CDO deal” />The London office of New York law firm Weil Gotshal & Manges is facing a claim of up to $100m (£55.7m) from one of its founding securitisation clients, underlining the growing volatility of the collateralised debt obligations (CDO) market.

In what is believed to be the first time a law firm has been sued for its involvement in the structuring of a CDO, Greenwich NatWest and National Westminster Bank (NatWest) are suing Weil for allegedly failing to exercise reasonable skill in the documentation and structuring of the landmark CDO.

Managing partner of Weil’s London office Michael Francies dismissed the claim against the firm as having “zero merit”, but declined to comment further on the matter.

It is understood that respected Weil head of securitisation and co-head of global structured finance Jacky Kelly, who brought client Greenwich NatWest across with her from Clifford Chance when she moved firms in 1998, led the team advising the banks on the $2.25bn (£1.25bn) Sabre Funding No 1 in 1999.

Greenwich NatWest and NatWest allege that the firm failed to exercise reasonable skill, care and diligence and breached its duty of care for the transaction.

Sabre Funding No 1 was launched in November 1999 and was one of the first cash CDOs backed entirely by a diverse pool of European, Japanese and US asset-backed securitisations.

CDOs, which offer investors exposure to loan and debt instruments, have since been described as “toxic waste” by both the former head of the Financial Services Authority Sir Howard Davies and financier George Soros because of the risks linked to the underlying assets. Market analysts certainly consider the earlier deals riskier than later offerings, which have stronger safeguards.

Such comments and the lawsuit against Weil follow the settlement of two high-profile CDO disputes earlier this year.

Last month, Bank of America and Banca Popolare di Intra (BPI) settled their long-running dispute over allegations of CDO misselling, with BPI receiving E15.5m (£10.4m). In February, German Landesbank HSH Nordbank and Barclays Capital also settled out of court over a CDO transaction.

NatWest had been a significant client of Weil, but the relationship diminished following its takeover by the Royal Bank of Scotland Group in March 2000.

Lovells head of corporate and financial litigation Graham Huntley has been drafted in to defend Weil. The claimants have instructed Freshfields Bruckhaus Deringer‘s head of dispute resolution for banking and finance Andrew Hart to act on their behalf.