GSO Credit -A Partners LP & Ors v Barclays Bank Plc v Barclays Bank Plc & Anor

Standard-form loan-market documentation must be construed to give effect to the parties’ language, viewed in its commercial context, while promoting certainty and consistency across transactions using the same terms. Under the 2012 LMA Terms, a trade concerning a surety bonds facility generally includes the economic burden of the seller’s obligations under issued bonds. The relevant assets are “funded” when the seller has paid money under the bonds, not merely when the facility has been drawn by issuing them. Where required third-party consent is unavailable, the parties must use an agreed structure providing the economic equivalent of the trade.

GSO funds claimed declarations and payment arising from back-to-back secondary debt trades with Barclays, which in turn traded with HCC. The trades concerned a portion of HCC’s commitment under a surety bonds facility for Codere and were documented using the Loan Market Association’s 2012 standard terms.

The parties disputed whether the trades included HCC’s contingent obligations under issued surety bonds, and whether the relevant assets were funded because the bonds had been issued or remained unfunded because no payment had yet been made. The court also considered the effect of the agreed “Legal Transfer only” mechanism and the absence of consent from bond beneficiaries.

1. Construction principles. The court applied the ordinary principles of contractual interpretation: the task was to ascertain what a reasonable person with the parties’ available background knowledge would have understood the language to mean. Commercial common sense supported the interpretation, but could not undervalue the language chosen by the parties. Because the documents were standard forms, their terms should receive a uniform commercial construction where the relevant circumstances did not materially differ.
2. Purchased Assets and Purchased Obligations. The trade covered HCC’s position under the surety bonds facility, including the economic burden of its obligations under issued surety bonds and the corresponding rights against Codere. The definitions of “Purchased Assets” and “Purchased Obligations” did not create the alleged exclusion or contrast. The related LMA transfer and assignment forms reinforced that obligations under bonds issued in connection with the credit agreement could correspond to the traded portion.
3. Funded and unfunded assets. For a surety bonds facility, issued bonds with no payment having been made left the Purchased Assets wholly unfunded. Assets became funded to the extent that HCC paid money under the bonds. “Funded” therefore did not mean merely drawn or utilised by issuing the bonds.
4. Settlement where consent is unavailable. The expression “any third party” in Condition 6.2 of the 2012 LMA Terms was sufficiently wide to include the public authorities benefiting from the bonds. If legal transfer could not occur, the parties were required to settle through a mutually acceptable alternative structure providing the economic equivalent of the agreed trade, including cash cover or a letter of credit where appropriate.
5. The court rejected factual and commercial arguments that did not assist in construing the trades. It reserved any necessary further argument concerning calculation of the Settlement Amount in light of the conclusions reached.

Not stated in the judgment; this was a first-instance decision in the High Court (Commercial Court).