Banco Popular bondholders have filed legal action against the Spanish banking regulator that signed off the beleaguered lender's €1 sale to Santander earlier this year.
Pimco and Anchorage Capital Partners are among the bondholders filing proceedings against the Fund for Orderly Bank Restructuring – known as FROB – which is the Spanish watchdog that oversees failing lenders.
The bondholders contest FROB’s resolution in which shares and junior bonds of Banco Popular were wiped out.
The action, filed yesterday evening with the Spanish National Court, is separate from legal proceedings against the European Commission and the Single Resolution Board (SRB) announced last month.
It is understood that the latest legal challenge should also give the bondholders a better understanding of what evidence was considered by FROB before giving the sale of Popular to Santander the green light at the start of June.
“The FROB resolution lacked the necessary justification, which made it impossible for stakeholders to evaluate the reasons, the legal basis, or the valuation underpinning the FROB resolution,” said Richard East a partner at Quinn Emanuel, the law firm representing the bondholders.
The actions against European and Spanish authorities are seeking to reinstate the bondholders' rights immediately prior to the sale.
The mechanism for such a reset is unclear given the unprecedented nature of the legal challenge. Ultimately, if the legal challenge is successful, it could fall on the Spanish government to reimburse bondholders' losses.
Read more: Santander to take over Spain's Banco Popular