Morgan Stanley lawsuit claims restructured Brightline loans to avoid paying lenders

Morgan Stanley Brightline lawsuit overview: 

• Who: A group of lenders have filed a lawsuit against Morgan Stanley and Brightline Holdings. 
• Why: The lenders claim Morgan Stanley schemed to avoid paying them what they were owed for contributing to loans for Brightline, a high-speed railroad company. 
• Where: The lawsuit was filed in New York Supreme Court.

Morgan Stanley schemed to avoid paying lenders what they were owed for contributing to loans for the high-speed railroad company Brightline Holdings, a new lawsuit alleges. 

The lenders claim they are owed at least $750 million on account of Morgan Stanley allegedly restructuring a credit agreement to avoid having to pay them what they were promised. 

Brightline borrowed hundreds of millions of dollars under the credit agreement, with Morgan Stanley allegedly making the initial loan and also serving as the administrative agent, the Morgan Stanley lawsuit alleges. 

“This case is about how Brightline Holdings and Morgan Stanley fraudulently and in breach of the Credit Agreement schemed to avoid having to pay plaintiffs the promised Make-Whole Amount,” the Morgan Stanley lawsuit states. 

The loans were meant to go toward a high-speed railroad project intended to connect Los Angeles with Las Vegas, according to the Morgan Stanley lawsuit. 

Lawsuit: Bank tried to hide that Brightline allegedly planned renege on make-whole amount

Morgan Stanley attempted to conceal that Brightline allegedly intended to renege on its promise to lenders to pay them the make-whole amount by fraudulently swapping out a signature page, the Morgan Stanley lawsuit alleges. 

The lenders claim Morgan Stanley placed the swapped out signature page from one of their funds and placed it on an amendment to the credit agreement “containing language about the prohibited transaction that plaintiffs had neither seen nor agreed to.” 

Morgan Stanley sold its remaining around $90 million in loan exposure months later, while lying to lenders and “concealing the fact of the prohibited preferred-unit transaction and improper releases of the subsidiary guarantors,” the lawsuit alleges. 

The lenders claim Morgan Stanley and Brightline are guilty of contract reformation, breach of the implied covenant of good faith and fair dealing, fraud and breach of contract. 

The plaintiffs are demanding a jury trial and requesting declaratory and injunctive relief along with a payment to them by Brightline of the make-whole amount, along with contractual interest due to untimely payment. 

Morgan Stanley, Bank of America, Goldman Sachs and other banks were fined a total of $1.8 billion last year to resolve claims they failed to properly monitor the communication of employees.

What are your thoughts on the claims against Morgan Stanley and Brightline Holdings? Let us know in the comments.

The plaintiffs are represented by Christopher Clark, Patrick J. Smith, Brian T. Burns and Sean McMahon of Clark Smith Villazor LLP.

The Morgan Stanley lawsuit is CK Opportunities Fund I LP, et al. v. Morgan Stanley Senior Funding Inc., in New York Supreme Court for New York County. 

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