Lyon Capital and Bryn Mawr CLOs

The securities arbitration lawyers at McCabe Rabin, P.A. are investigating the marketing and sales of two collateralized loan obligations (“CLOs”) by Banc of America Securities (now Merrill Lynch): Lyon Capital Management VII (“LCM VII”) and Bryn Mawr II.

CLOs are packages of bank loans sold as securities. Each CLO has different classes of securities backed by a common portfolio of loans. Each class or “tranche” offers more or less interest depending each tranche’s relative riskiness.

The principal and interest payments to investors in the CLO are distributed in what is commonly referred to as a “waterfall.” Investors in the most senior tranche, often called “Class A,” get paid first, the Class B investors are paid next, and so on, with the most junior investors, often called the “equity tranche,” paid last. If the returns on the portfolio are insufficient to pay the promised return to investors in the senior tranches, it is possible that the equity tranche investors will not get paid at all.

On January 31, 2012, a Financial Industry Regulatory Authority (“FINRA”) arbitration panel issued an award ordering Merrill Lynch (Banc of America Securities’ predecessor) to pay an LCM VII investor $1.38 million, representing the entirety of his lost investment, plus costs and attorney’s fees.

In July 2007, Banc of America issued the LCM VII and Bryn Mawr II CLOs. Both of the CLOs contained a portfolio of loans that had been purchased during the period November 2006 to June 2007. The purchased loans were then “warehoused” until the CLOs were issued.

According to expert testimony given in the arbitration, the value of the warehoused loans in the LCM VII portfolio lost 5% of their value between the time they were purchased and the day the CLO was issued. Similarly, the Bryn Mawr II loan portfolio lost 3.5% of its value prior to issuance of the CLO. According to the claimant’s expert, the lower tranches in the CLOs were already worthless before Banc of America sold the CLOs to investors.

The securities arbitration attorneys at McCabe Rabin are investigating whether Banc of America Securities adequately disclosed the decline in value of the portfolios to potential investors and the risk involved in the investments.

Investors nationwide who suffered a loss as a result of an investment in Lyon Capital Management VII or Bryn Mawr II, and who may have a FINRA arbitration claim, may contact the Florida securities lawyers at McCabe Rabin, P.A. for a free and confidential consultation by calling toll free at 877.915.4040 or by e-mail to kelly@mccaberabin.com.

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