06- nov 2008

NEW YORK, - Barclays Capital, part of Barclays Bank (BARC.L: Quote, Profile, Research, Stock Buzz), is selling a $970 million portfolio of loans on Tuesday to close out trades as part of a dispute between the bank and hedge fund Black Diamond Capital Management, Reuters Loan Pricing Corp said.

Black Diamond recently filed suit against British-based Barclays in New York State Supreme Court, accusing it of failing to return excess capital held under a total return swap (TRS) facility.

The excess collateral and interest accrued was approximately $302 million, according to the complaint.

"After Black Diamond Capital determined that Barclays held excess collateral, Black Diamond Capital sent Barclays a demand for the return of those excess funds," according to the complaint. "Barclays failed to make the payments as required under the agreements and, as a result, defaulted."

Barclays spokesman Brandon Ashcraft said, "The lawsuit has no merit. We will defend ourselves vigorously."

In a typical bank loan TRS transaction, the bank providing the TRS to an investor will buy and hold the underlying bank loans on either its own balance sheet or in a special purpose vehicle as collateral to back the future payments owed by the investor.

The investor, usually a hedge fund or collateralized loan obligation, a structured deal backed by loans, will then deliver a portion of the purchase price to the bank. If the investor fails to make a payment, the bank can sell the loans.

When the market for the underlying loans declines and losses mount, investors face repayments akin to margin calls. The bank typically asks the investor to put up more money depending on the price of the underlying loans.

The calls, however, can go both ways. If the bank is holding too much of the investors' collateral, the investor has the right to ask for the surplus.

LOAN SALES

More than $2 billion in cash loan portfolios have been auctioned in the last couple of weeks as declining bid levels for term loans have plunged. As of yesterday, the average bid for the 100 most widely held loans was sitting at 71.35, down from 85.38 a month ago, according to LSTA/LPC Mark-to-Market Pricing.

Bids for Barclays loan portfolio are due Tuesday afternoon and include about 135 loan tranches sized between about $350,000 and $24 million.

The portfolio includes a $12 million piece of Accellent Inc's Term Loan B, a $4 million piece of Bombardier Inc's (BBDb.TO: Quote, Profile, Research, Stock Buzz) Term Loan B, an $11.5 million piece of Boston Generating's Term Loan B, $13 million of Delta Air Lines Inc's (DAL.N: Quote, Profile, Research, Stock Buzz) paper split between its Term Loan B and revolver, about $24 million of Exide Technologies' first-lien loan, about $22 million of General Motors Corp's (GM.N: Quote, Profile, Research, Stock Buzz) Term Loan B, and about $21 million of United Airlines' (UAUA.O: Quote, Profile, Research, Stock Buzz) term loan, sources told RLPC.

Some of the largest sectors represented in the portfolio include the automotive sector, the broadcasting and entertainment sector, the home furnishing sector, leisure and entertainment, transportation, chemicals and plastics and printing and publishing.

According to LSTA/LPC Mark-to-Market Pricing, the average bid for all automotive-related loans has declined about 13.5 points to 67.25 in the last month.

The average bid for all leisure-related loans has declined almost 16 points to 66.5. Average bids for the chemicals and plastics sector have declined almost 12.5 points to 69.5. (Reporting by Caleb Frazier; Writing by Karen Brettell; Editing by Leslie Adler)

Sources:-http://www.reuters.com/article/marketsNews/