Kohlberg Capital Files Complaint Against BMO Capital Markets

Back in September of last year, Kohlberg Capital (KCAP) was told that the lenders under its credit facility were not going to renew the facility when it came due, unless Kohlberg agreed to revised terms among which was an increased interest rate. But instead of giving in to those demands, Kohlberg decided instead to let the facility terminate under an amortization period lasting through September of 2010. During that period Kohlberg would maintain the low rate of interest that had originally been locked in, of the prevailing commercial paper rate plus 0.85%.

The credit facility has a Loan Funding and Servicing Agreement, with BMO Capital Markets (BMO). According to Kohlberg, starting in the fourth quarter of 2008 BMO began engaging the company in discussions about a possible extension, in exchange for an increase in the interest rate. But those discussions never led to an agreement.

In June of this year, BMO then sent Kohlberg a letter asserting the company had breached its obligations under the agreement, causing an event of termination, which would result in a higher interest rate being charged. In its second quarter earnings release last month, Kohlberg stated BMO's claim was without merit, and denied any breach. BMO responded maintaining its position but suggesting the parties discuss a resolution to the matter.

All of this led to the complaint filed by Kohlberg last week in the Supreme Court of the State of New York against BMO Capital Markets. The complaint alleges that BMO's actions are a scheme to avoid their obligations to Kohlberg, and requests the court to reject the termination notices as unlawful and invalid, force BMO to stop charging the higher interest rate, and seeks a judgment against BMO to be determined at trial but no less than 5 million dollars.

The preceeding is a transcript of the MarketNewsVideo.com video published at: http://www.marketnewsvideo.com/?id=200909KBMO090309&mv=1.

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