April 5, 2012 / 9:42 PM / 6 years ago

Highland files suit against Citi over CLO dispute

April 5 (LPC) - Highland Capital Management today filed a lawsuit against Citigroup and Babson Capital Management following a dispute over the asset manager’s involvement with a collateralized loan obligation known as Liberty CLO.

In the suit filed in the District Court of Dallas County, Texas, Highland accuses Citi of tortiously interfering with a portfolio management agreement between the two parties when it recently pushed the former to liquidate the loan vehicle.

A Citi spokesperson declined comment pending review of the lawsuit.

Highland argues that “by making improper use of confidential information,” obtained as arranger of the vehicle Citi has been able to purchase more than half of the outstanding debt on the CLO at deep discounts and now wants to “cash in.”

However, Highland believes that the sale of the assets backing the vehicle would be insufficient to cover the notes and fees.

To force Liberty’s liquidation, Citi has looked to remove Highland as portfolio manager and replace it with Babson Capital Management. The latter has agreed to force liquidation.

Highland is asking the court to prevent Citi from replacing it as manager of the vehicle and is also asking for retribution for damages suffered.

The suit stems from a disagreement between Highland and Citigroup over Liberty CLO, a $900 million CLO Citi arranged for Highland in 2005.

If the CLO is liquidated, the suit says, Citi will be paid back at face value, resulting in a windfall to Citi.

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