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A new challenge to hedging, swap and collar agreements

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Following the recent scandal over the manipulation of LIBOR rates by Barclays Bank, it has now come to light that this manipulation may have rendered thousands of interest rate hedging, interest rate swap and interest rate collar and cap agreements void. The agreements that are presently under the spot light are those which have their interest rates referenced to LIBOR. LIBOR is the inter-bank lending rate.

The issue has been highlighted in the claim by Guardian Care Homes who entered into two hedging agreements, an interest rate swap and a collar agreement. Guardian Care Homes are contending in their claim against the bank that the LIBOR fixing by Barclays was a breach of an implied term in the agreements that the LIBOR representations were true. Guardian Care Homes contend as result that they should be able to cancel their agreements and not have the pay the £9 million cancellation fee. The bank are presently defending the proceedings.

Whilst the claim has yet to be decided, it does open the way for a new challenge to hedging, swap and collar agreements that are based upon the LIBOR rate.

By commercial solicitor, Leanne Millhouse