Jefferies claims Western Alliance lawsuit has 'no merit'

Jefferies has blasted a lawsuit filed by Western Alliance Bank relating to a dispute over loans linked to collapsed auto parts supplier First Brands, claiming the action has no merit and contains misleading statements.

Western Alliance filed a lawsuit in New York state court against US investment bank Jefferies on Friday, alleging breach of contract and fraud over a loan it made to a Jefferies-managed fund that provided financing to First Brands before its collapse.

Western Alliance’s chief executive Ken Vecchione said on Friday that he had “never witnessed a breach of contract that so deliberately places the reputation and operating integrity of a counterparty at risk”, accusing Jefferies of failing to repay $126mn still outstanding under the loan.

But Jefferies has now said the statements made by Western Alliance executives – and the subsequent lawsuit – are “false or misleading” and that there is no merit to any of the claims.

In a public letter, Jefferies’ chief executive Richard Handler hit back at Western Alliance’s accusations, arguing that the Arizona-based regional bank had made ‘non-recourse loans’ to special purpose entities that held First Brands receivables, rather than to Jefferies itself. In these cases, borrowers cannot pursue legal action against affiliated or parent companies.

Handler said that statements made by Western Alliance executives were “false or misleading”.

“With respect to the lawsuit, although Jefferies will respond more fully in due course, Jefferies believes there is no merit to any claims seeking to recover from Jefferies or other entities that were not obligors to Western Alliance,” it added.

“Jefferies honors all its obligations. Jefferies has no obligation to pay off a non-recourse loan Western Alliance chose to make to a special purpose vehicle against First Brands receivables. The statement that Jefferies ‘couldn’t’ repay $126m is false and absurd.”