Gibbs & Bruns comes to NY to sell investors on $8.5bl BofA deal

By Alison Frankel
July 16, 2011

Kathy Patrick wants to set the world straight.

The Gibbs & Bruns partner, who represented 22 major Countrywide mortgage-backed securities investors in the negotiations that led to the June 29 proposed $8.5 billion Bank of America deal, has come East from her home office in Houston to sell Countrywide MBS noteholders and anyone else who will listen on the settlement she and her partner Scott Humphries negotiated with BofA and Countrywide MBS trustee Bank of New York Mellon.

In the face of questions about the deal from six Federal Home Loan Banks, the New York State Attorney General, and a North Carolina Congressman, Patrick and Humphries spent Thursday in Washington and Friday in New York, meeting with MBS investors and “other interested parties” they declined to identify. The Gibbs lawyers’ message: The proposed BofA settlement represents a far better outcome for noteholders than continued litigation of loan-by-loan breach of contract claims against Countrywide. In that scenario, they insist, there would be no guaranteed outcome, no assurance investors can obtain a judgment against BofA as Countrywide’s successor, and none of the mortgage loan-servicing provisions that are a big part of the proposed deal. (The Gibbs & Bruns lawyers and some of their institutional investor clients argue that the servicing component of the deal, in which Bank of America has agreed to outsource loan servicing to specialists tasked with renegotiating troubled mortgages, could end up being as valuable as the cash part of the settlement.)

Patrick is particularly exercised that one objector to the proposed settlement has asserted that the deal “fails to address” securities claims pending against Countrywide. The settlement agreement specifically states that securities fraud claims are not part of the deal, and even if BNY Mellon, as trustee, wanted to give away investors’ right to sue for securities fraud, it has no power to do so. Patrick said she was so determined to preserve her own clients’ securities law claims that Gibbs & Bruns very nearly walked away from late-stage negotiations when Bank of America’s lawyers from Wachtell, Lipton, Rosen & Katz demanded a release. “We said not only no, but hell no,” Patrick said, adding that she was ready to leave $8.5 billion on the table.

Patrick said that so far, the only announced objectors to the settlement-as opposed to the New York AG, the Federal Home Loan Banks, and others who’ve said they want more information– are clients of Grais & Ellsworth, including a coalition of MBS investors that sued Bank of America after David Grais learned of the Gibbs & Bruns group’s settlement discussions. “There’s a misperception out there that lots of investors are unhappy with the deal,” Patrick said. “Look very carefully: They’re all represented by one lawyer at one law firm,” she said. Moreover, she added, no objector has suggested a viable alternative to the proposed settlement.

“Here’s a fundamental question any of these objectors will have to answer,” Patrick said. “What’s your plan? What is your plan to fix the servicing?…Unless you have a credible plan, unless you’re going to indemnify all of us against losing this bird in the hand, then you have nothing.”

OTC reached out to David Grais and Owen Cyrulnik for a response. Grais declined comment.

(Reporting by Alison Frankel)

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