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Solus Alternative Asset Management LP v. GSO Capital Partners L.P., Not Reported in Fed. Supp., 2018 WL 620490

Facts

The case arose from a transaction where GSO Capital Partners agreed to refinance certain Hovnanian debt, which included a covenant for Hovnanian to default on specific bonds despite having the resources to make the payment. This transaction was expected to trigger a 'Credit Event' related to credit default swaps (CDS) that Solus had sold, leading Solus to allege that the defendants engaged in market manipulation and failed to disclose material information. Solus sought a preliminary injunction to halt the transaction, claiming it would suffer irreparable harm as a bondholder and CDS protection seller.

The case arose from a transaction where GSO Capital Partners agreed to refinance certain Hovnanian debt, which included a covenant for Hovnanian to default on specific bonds despite having the resources to make the payment. This transaction was expected to trigger a 'Credit Event' related to credit default swaps (CDS) that Solus had sold, leading Solus to allege that the defendants engaged in market manipulation and failed to disclose material information. Solus sought a preliminary injunction to halt the transaction, claiming it would suffer irreparable harm as a bondholder and CDS protection seller.

Issue

Did the plaintiff demonstrate irreparable harm sufficient to warrant a preliminary injunction against the defendants' transaction involving Hovnanian Enterprises?

Did the plaintiff demonstrate irreparable harm sufficient to warrant a preliminary injunction against the defendants' transaction involving Hovnanian Enterprises?

Rule

To obtain a preliminary injunction, the moving party must demonstrate (1) irreparable harm absent injunctive relief; (2) either a likelihood of success on the merits, or a serious question going to the merits; and (3) that the public's interest weighs in favor of granting an injunction.

To obtain a preliminary injunction, the moving party must demonstrate (1) irreparable harm absent injunctive relief; (2) either a likelihood of success on the merits, or a serious question going to the merits; and (3) that the public's interest weighs in favor of granting an injunction.

Analysis

The court analyzed whether Solus met the burden of demonstrating irreparable harm. It found that the potential economic impact of the transaction did not constitute irreparable harm, as Solus could be compensated with monetary damages if it succeeded in its claims. The court also noted that the alleged public harm from the transaction was speculative and that the sophisticated nature of CDS market participants mitigated the risk of widespread negative consequences.

The court analyzed whether Solus met the burden of demonstrating irreparable harm. It found that the potential economic impact of the transaction did not constitute irreparable harm, as Solus could be compensated with monetary damages if it succeeded in its claims. The court also noted that the alleged public harm from the transaction was speculative and that the sophisticated nature of CDS market participants mitigated the risk of widespread negative consequences.

Conclusion

The court denied Solus's motion for a preliminary injunction, concluding that it failed to demonstrate the requisite irreparable harm necessary for such extraordinary relief.

The court denied Solus's motion for a preliminary injunction, concluding that it failed to demonstrate the requisite irreparable harm necessary for such extraordinary relief.

Who won?

Defendants prevailed in the case because the court found that the plaintiff did not meet the burden of demonstrating irreparable harm, which is essential for granting a preliminary injunction.

Defendants prevailed in the case because the court found that the plaintiff did not meet the burden of demonstrating irreparable harm, which is essential for granting a preliminary injunction.

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