Barlcays and Angelo Gordon In Dispute Over Commercial-Mortgage Bonds

Barclays PLC (BCS, BARC.LN) and big-name hedge fund Angelo Gordon & Co. are battling over whether some $600 million in outstanding commercial-mortgage backed securities have defaulted.

The fight, which also involves an argument from MBIA Inc. (MBI), pits the two big names against each other to such an extent that the trustee for the bonds, U.S. Bancorp (USB), has sought a judge's help.

In essence, Barclays as an investor in the notes claims the bonds have defaulted because there should have been some $8.5 million paid to investors. Barclays argues the misallocation of those funds caused a material default and that the investors are now owed the entire remaining principal and all interest.

Angelo Gordon, a hedge fund with $22 billion in assets under management and a growing force in the real-estate investing world, is the collateral manager for the bonds. It disputes there were any errors and also disputes that specific error would cause a default, refusing to hand over the collateral or let the deal be liquidated.

Meanwhile, MBIA, another investor in the bonds, also disputes there would be a default if Barclays was correct on the mistake.

U.S. Bancorp said it could not determine in its capacity as trustee whether there had been a mistake. In the court filing in federal court in Manhattan it says it hired an independent expert, at the request of Barclays, and that expert did determine a default was made and it was prepared to liquidate the funds before MBIA refuted the claims. It has placed nearly $2.3 million in interest payments in an escrow account until the matter is settled.

Barclays couldn't immediately comment and Angelo Gordon couldn't immediately be reached for comment.

-By David Benoit, Dow Jones Newswires; 212-416-2458; david.benoit@dowjones.com

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