In a case arising from a series of complex derivative contracts, the plaintiff alleged that it did not receive fair market pricing on the swaps.
Retained by Clifford Chance
Defense counsel for Rice Financial Products Company (Rice) retained Cornerstone Research and Professor René Stulz of The Ohio State University in a case arising from a series of complex derivative contracts. The plaintiff, West Basin Municipal Water District (West Basin), had entered into a series of leveraged municipal interest rate swap contracts with Rice. The swap contracts were based on the Bond Market Association Municipal Swap Index and LIBOR rates, and contained leverage and spread features that complicated their structure. West Basin alleged that it did not receive fair market pricing on the swaps.
Professor Stulz testified that the plaintiff had failed to consider factors related to liquidity, termination, and overnight funding risk.
Working with Professor Stulz, we analyzed the components and risks of the swaps, including liquidity risk in the over-the-counter swap market in the immediate aftermath of the 9/11 terrorist attacks. We performed pricing analyses, investigated issues related to fiduciary duty, and assessed the work of an opposing expert witness. Professor Stulz testified that both parties were well aware of the structure of the swaps, but that the plaintiff had failed to consider factors related to liquidity, termination, and overnight funding risk. The case settled.