RHG default debated

Parties involved in a dispute over alleged loan default by RHG Group gave their closing submissions before Justice Robert McDougall in the Supreme Court of New South Wales yesterday. At stake is the forfeiture of a pool of mortgages managed by RHG, which would be sold to pay out the disputed loan.

RHG stands to lose a substantial revenue stream if the court orders it to forfeit the assets. RHG also faces the risk of cross-default under other borrowing obligations.

RHG raised funds by securitising $300 million of mortgages and issuing Series UniCredit notes. The note subscriber was Unicredit, a subsidiary of a European bank, HVB. Unicredit assigned its rights to a special purpose vehicle Elektra No 19.

Late last year Unicredit and its security trustee, BNY, notified RHG of an event of default in December 2008, resulting from arrears rates going above a prescribed level.

This set in train a process that would result in a special meeting of creditors, the appointment of a receiver to the trust and the sale of the assets to pay out the loan.

Unicredit later claimed another event of default occurred in January.

RHG went to court to seek relief, which was granted in September, and then the matter went back to court for a final hearing.

Unicredit and BNY relied on a report by McGrath Nicol, which concluded that there had been an event.

According to court documents: "It reached that conclusion on the basis of certain assumptions as to when a loan would be in arrears and how one would determine the time for which loans should be classified as having been in arrears. The plaintiffs (RHG) challenge those assumptions."

In court yesterday RHG's barrister argued that the arrears had been a mistake and not deliberate breaches, that the conduct was minor and could be remedied.

The BNY and Unicredit legal team argued that RHG had failed to prove that there had been a mistake. Rather, there had been a lack of good faith in dealing with its contractual obligations.