Hedge Fund to Special Servicer: Stop the ‘Revisionist History’ On Stuy Town
Eliot Brown March 23, 2010, 5:31 p.m.
The hedge fund angrying up the waters in Stuyvesant Town’s foreclosure has filed a testy response in federal court to the firm controlling the 11,200-unit property, complete with colorful legal vituperation. The fund, Appaloosa Investment, is suing the special servicer that controls the property for taking the complex through a foreclosure process against the will of certain bondholders who own pieces of Stuyvesant Town (namely, Appaloosa, which says it has $800 million invested in the securitized bonds that include Stuyvesant Town).
Appaloosa, controlled by billionaire David Tepper, filed a complaint in February, alleging that CW Capital didn’t have the right to move forward on the foreclosure; and, then earlier this month, the special servicer responded that it did have the right, and that the hedge fund didn’t even have the right to sue.
Appaloosa’s attorneys didn’t seem to receive this well, calling CW Capital’s response a “a masterpiece of misdirection.”
“CW Capital’s Response demonstrates why abuses in the last generation of securitizations brought this country to the brink of financial collapse,” the filing says.
A bit more:
CW Capital would have this Court believe that the ‘no-action’ clause in a securitization deprives investors (including Appaloosa, with over $800 million at stake) of any right to protest when their ‘Special Servicer’ ignores their interests and pursues a reckless path that exposes them to excess taxes, multi-hundred million dollar excesses rent judgments, and potential environmental liabilities.
The filing goes on to say that CW Capital’s “argument that Appaloosa is ‘just another investor,’ … should be seen for what it is: revisionist history.”
The legal battle between CW Capital and Appaloosa is, of course, exactly what everyone on the sidelines meant when they said that a Stuy Town foreclosure would be complex. There are a long list of investors who are bondholders in this deal, making any easy solution seem increasingly unlikely. Appaloosa seems to have strategically bought the majority of an individual tranche of bonds, presumably at a big discount as the initial $5.4 billion deal flailed. That tranche is relatively low on the totem pole and its investment could be wiped out should the property be sold, given the high cost of transfer taxes (perhaps $100 million to $200 million, depending how it is handled). Thus Appaloosa is angry that CW Capital is taking the property through a foreclosure that would involve paying the transfer taxes, perhaps eliminating the investments of the more risky tranches.