As a disturbing counterpart to the recent LTV Steel controversy in the U.S. (see ASR 3/12, p.1), pending litigation in the U.K. related to Lexington Insurance-AIG's refusal to honor its insurance policy on two downgraded film-backed deals (see ASR 2/19, p.1) has engendered its own firestorm of criticism and debate in the global ABS community.

The case is troublesome to market observers on many different levels. U.K.-based Quadrant Capital, which manages a structured investment vehicle (SIV) that was the sole investor in one deal (Hollywood Funding No. 5, or HF5) and a 50% investor in the other deal (Hollywood Funding No. 6, or HF6), was forced to deleverage its AAA-rated SIV by $100 million as a result of Lexington's refusal to meet its obligations. This took place even after Lexington was warned that its decision would have severe consequences for Quadrant's SIV.

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