Legal Analysis: NY Court Indicates Euroclear Operating Procedures Likely Provide UBHs of Defaulted USD Notes Ability to Take Unilateral Action Against Issuer, Guarantors; Outcome Subject to Standing Discovery

Reorg Asia’s Highlights: The Supreme Court of the State of New York has indicated that Euroclear’s operating procedures, or Operating Procedures, likely enable underlying beneficial holders, or UBHs, to take unilateral action against defaulted USD note issuers and/or guarantors; The issue is at the center of a collection suit brought by BFAM Asia Opportunities Master Fund LP, or BFAM, against Zhongrong International Resources Co. Ltd., or Zhongrong, in respect of its defaulted $500 million 7.25% due 2020 notes, or Notes, in the New York Court before Justice Cohen; Although Justice Cohen dismissed BFAM’s motion for summary judgment on its collection suit, the dismissal was “without prejudice,” and leave was granted for BFAM to refile once it has been able to “shore up the evidentiary record” around its standing; The U.S. Court is focused on the UBH establishing standing via an evidentiary trail within the global note ecosystem, which includes Euroclear and BFAM’s prime broker, after Zhongrong asserted hearsay objections to BFAM’s proof of beneficial ownership; and If summary judgment is eventually granted, the case will likely present a route for UBHs to successfully take action under defaulted, New York law-governed USD notes against an issuer and/or guarantor(s) in the New[...]