Wall Street lenders prevailed in a closely watched legal case that threatened to upend the syndicated-loan market, a key source of capital for private-equity firms, the Wall Street Journal reported. The U.S. Court of Appeals for the Second Circuit in New York yesterday ruled that a group of banks, including JPMorgan Chase and Citigroup, aren’t liable for the failure of a 2014 loan to drug-testing business Millennium Health. The verdict confirms a district court’s 2020 dismissal of the suit brought by Millennium bankruptcy trustee Marc Kirschner, who sought to increase recoveries for the company’s creditors. The banks chopped up the $1.8 billion loan and sold it to about 400 investors, who then lost money when Millennium filed for bankruptcy in 2015 and defaulted on the loan after settling a government investigation into illegal billing practices. The decision resolves—for now—a technical question with great significance for the $2.5 trillion U.S. syndicated-loan market. The circuit judges said they didn’t think the syndicated debt should be classified as a security, such as stocks and bonds. Earlier court rulings had come to the same conclusion “and plaintiff offers no compelling reason to revisit that decision now,” the appeals-court judges said.
