Germany's Bayerische Hypo-und Vereinsbank (BHV) has won a US$39 million judgment against Banca Nazionale del Lavoro (BNL) in respect of a dispute over which bank should assume the lending risk a loan to a contractor to perform work for an affiliate of energy trader, Enron Corp.

A US judge has ruled that the Italian bank assumed the lending risk in a letter of credit (L/C) in respect of a loan made to the contractor on the eve of the collapsed US energy trader filing for bankruptcy under Chapter 11.

Disputed draw

In dispute was a US$39 million draw that Enron's contractor made on the L/C that BHV had issued and administered, but in which BNL had purchased a 100 per cent risk participation interest.

The draw occurred two days after Enron's bankruptcy filing. When BHV demanded reimbursement from BNL, the Italian bank refused, claiming that BHV should not have permitted the draw.

Risk transfer

BHV, on the other hand, charged that BNL should not have permitted the borrowing on 4 December 2001 by Green Country Energy LLC, a unit of Cogentrix Energy Inc. Green Country had a contract with NEPCO, an Enron unit.

BHV said it administered the credit line from which Green Country borrowed, but that the Italian bank had agreed in December 2000 to accept the lending risk.

BHV consistent

Judge Arthur Gonzalez of the US Bankruptcy Court in Manhattan , who has overseen the Enron bankruptcy, agreed. "BNL contracted to take the Enron risk on the Letter of Credit," he wrote.

The judge also deemed that BHV had "acted consistent with the Duty of Care and its obligation to act in Good Faith".

Appeal

On 16 May 2003 Gonzalez granted the German bank's motion for summary judgment, which meant that a trial was not necessary in what is reportedly one of the largest Enron-related recoveries obtained through litigation thus far.

A spokesman for BNL said that the Italian bank plans to appeal.

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