Inside Money: When good bonds go bad: NZ Super stars in 'The December Decision'

Just like the recent Bond films, the court case between 12 certain global investors and the Portuguese 'Novo Banco' is likely to feature things blowing up and be way, way too long.

In March 2014, Goldman Sachs International ("GSI") was approached by a Venezuelan oil company, Petroleos de Venezuela S.A. ("PDVSA"), with a view to arranging trade finance in connection with a refinery project in Puerto de la Cruz, Venezuela ("the Refinery Project" ).

The above is either:
a) the opening scene of a new Bond movie; or,
b) an investment disclosure statement.

Of course, it's possible neither answer is true.

The paragraph is culled from the 'Particulars of claim' documents in the case between 12 certain global investors and the Portuguese 'Novo Banco'.

The court documents, filed in the UK, reveal the back-story of the ill-fated US$800 million plus loan to the now-defunct Banco Espirito Santo (BES). In the court filings, the Goldman Sachs International (GSI) plan to finance the BES deal is explained in minute detail:

"The structured credit trading desk of GSI initiated discussions with BES regarding the provision of this financing," the court documents say. "The discussions evolved into a proposal whereby BES would provide trade financing for the Refinery Project and GSI would arrange senior unsecured, general corporate purpose financing for BES with a customised maturity profile that matched BES's expected proceeds from the trade financing."

By the time the ultimate end investors, which included the New Zealand Superannuation Fund (NZS), came to the party, it's difficult to tell how much talk there was of 'the Refinery Project' or 'Puerto de la Cruz' or even 'Venezuela'.

Nevertheless, NZS joined a dozen other sophisticated international investors in the deal, tipping in US$150 million (the equal-largest contribution along with Silverpoint Luxembourg Platform).

Whatever the investment merits of the loan (packaged by GSI as notes under an entity called Oak Finance), the court documents paint a fascinating picture of how big money goes about its business.

In a little over a month after beginning talks with BES, Goldman Sachs had the Oak structure in place, which involved several parties including Luxembourg-based subsidiaries of Deutsche Bank and Bank of New York Mellon as well as a couple of Dutch entities.

By July 3 NZS was handing over its cheque, with the last of the dozen claimants buying into Oak as late as October 20 last year - months after BES itself had spiralled into a messy bankruptcy involving "various financial irregularities".

The success of the NZS et al legal case (there are actually two court actions with another being pursued in Portugal) hinges on whether the Portuguese central bank decision to shift the Oak loan from the safe haven 'Novo Bank' to the 'bad bank', which housed all BES debts way down the to-do list, can be sustained.

'The December Decision', as the court documents label it, would be a perfect name for a Bond movie, too. And just like the recent Bond films, the court case is likely to feature things blowing up and be way, way too long.