Security Capital Assurance Ltd. has countersued Merrill Lynch & Co. for $28 million, claiming the investment bank broke agreements it made with the bond insurer.
Merrill Lynch last month sued Security Capital Assurance after the insurer killed seven contracts it had signed promising to cover losses on $3.1 billion in "credit swaps."
These swaps were contracts agreeing to cover missed payments on collateralized-debt obligations, which are investments splicing payments from various pools of debt.
Merrill Lynch claims SCA is responsible for the contracts it signed and is trying to force the company to honor the deals.
In its countersuit, SCA claims Merrill Lynch broke one of the stipulations in the seven contracts, which would entitle the bond insurer to terminate them.
Under the contracts, SCA was granted "control rights" over the CDOs, meaning the insurer had control over decisions affecting the investments.
SCA said Merrill Lynch, in a "rushed campaign" to dump risk from its books, promised control rights to other parties.
"Merrill Lynch made the decision to blatantly ignore its prior commitments," SCA said.
SCA's suit seeks to validate the contract terminations, and seeks $28 million in damages the company says Merrill Lynch is liable for under the terms of the swaps.
The suit was filed in the U.S. District Court for the Southern District of New York by SCA's subsidiary, XL Capital Assurance.
A spokesman for Merrill Lynch did not immediately reply to a request for comment.
Terms & Conditions
RSS Headlines
Fool UK