Irish case could raise US capital costs The outcome of a Federal Appeals Court decision in a battle between Anglo Irish Bank and Fir Tree Capital, a New York hedge fund, threatens to raise the cost for foreign borrowers of raising capital in the US, particularly banks in European countries still judged to be fragile. Fir Tree sued last year to force the Irish bank to comply with covenants attached to $200m of debt issued in New York and subject to state law. However, the New York District Court dismissed the suit, ruling that, as the bank is now controlled by the Irish government, it is a sovereign matter for the Irish courts. Written arguments are due for submission this week, and a decision by a panel of three judges is expected in the autumn. Anglo Irish Bank and Fir Tree declined to comment. If the decision is upheld on appeal by the Second Circuit, lawyers warn it could leave lenders to the subsidiaries of foreign businesses unable to enforce their rights if the parent is later nationalised. Borrowing costs for those considered to be at risk would be likely to rise. "We'll see investors examining the notes of foreign issuers quite carefully," said Renee Dailey, partner at Bracewell & Giuliani. We'll have to factor it into pricing, and I don't think this will apply just to banks, it could apply to any sector the government is otherwise interested in, telecoms, infrastructure, things of that nature. The case revolves around the 1976 Foreign Sovereign Immunities Act, which protects foreign governments from US litigation related to sovereign acts, but does not apply to purely commercial activity and is often waived by treaty. Anglo Irish, a specialist lender among the most exposed to Ireland's property crash, was nationalised in 2009, but not placed into bankruptcy. Fir Tree moved to enforce its contract before the bank sold its US assets as part of a reorganisation. However, the judge found that the contracts under which the debt was sold predated the nationalisation, and so do not bind the Irish government. He also found that a treaty between Ireland and the US to waive FSIA rights applied only to US persons, not Fir Tree which is registered in the Cayman Islands. The nationalisation shouldn't rewrite the contract. The bank obligation should remain the same under the contract. I don't think it's appropriate that the nationalised bank gets to have additional rights or gets to take away rights from their counterparty," said Ms Dailey, who is not involved in the litigation. The case is at least likely to require a change to the way US contracts are written, making nationalisation an event of default under covenants attached to the debt of foreign issuers.