Burlington Loan Management Caught in Iceland Bank Failures

Burlington Loan Management Ltd., a company owned by U.S. hedge fund Davidson Kempner Capital Management LLC, is one of the largest creditors in Iceland’s failed banks, Industry Minister Steingrimur J. Sigfusson said.

The investor represents 8.46 percent of all claims against Glitnir Bank hf, according to a letter to Iceland’s parliament from Sigfusson, posted today on the legislature’s website. Burlington is the fifth-largest creditor of Kaupthing Bank hf, with 3.92 percent “of approved general claims” against the Reykjavik-based lender, according to the letter.

Kaupthing’s largest creditor as of Nov. 26 was a Luxembourg-based company, York Global Finance Offshore BDH (Luxembourg) S.a.r.l., according to the letter.

Kaupthing, Glitnir and Landsbanki Islands hf collapsed in October 2008, defaulting on $85 billion in debt. Kaupthing and Glitnir have sought permission from the central bank to sidestep the island’s capital controls as they work to settle with creditors. Landsbanki, which today announced it had changed its name to LBI hf, plans to complete a similar accord in the next five to six years.

Central bank Governor Mar Gudmundsson said in a Jan. 11 interview that Iceland will “never grant an exemption to the foreign exchange laws, if that exemption might lead to financial instability or have an adverse effect on the krona’s exchange rate.”

IMF Bailout

Iceland completed a 33-month International Monetary Fund program in August 2011. It has won praise for its crisis management from both the Washington-based fund and Nobel laureate Paul Krugman. The controls and Iceland’s decision to let its banks renege on their obligations to bondholders underpinned the island’s recovery, according to the IMF.

The curators of the failed banks have called for a faster response from the government and the central bank in approving requests to enable settlement. The winding-up committee of Kaupthing, the largest of the failed banks, in November said it was forced to postpone a credit deal because of opposition from the central bank.

Half of Glitnir’s assets have been sold and are held in cash, Steinunn Gudbjartsdottir, the head of Glitnir’s committee, said this month. “This money legally belongs to the creditors Glitnir,” she said.

The combined assets of Kaupthing and Glitnir were $13.6 billion, according to their latest financial reports.

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