Creditors upset at a bank that serves rural America have brought their complaints to downtown Manhattan.

A group of CoBank ACB bondholders, including Capital Group Cos., are suing the farm lender after it repurchased $405 million of high-interest bonds over their objections. In a complaint filed on Monday in Manhattan federal court, investors argue that the bank hasn't met the conditions required for the buyback. The debt was issued in April 2008, a month after the collapse of Bear Stearns Cos.

The investors had previously complained to the bank that they stand to lose money due to the repurchase and lobbied its regulator when CoBank revealed its intention to buy back the debt in March at face value, people with knowledge of the matter said at the time. The notes were trading at about 112.5 cents on the dollar before the bank announced the deal.

The move hinges on the interpretation of a rule released by the Farm Credit Administration that is aimed at redefining capital requirements. The creditors are demanding a jury trial with the damages to be determined during the proceedings, the court documents show.

"We believe the redemption was consistent with the terms of the notes," CoBank Chief Financial Officer David Burlage said in an e-mailed statement. Investors were paid principal in full and accrued interest to the date of redemption. We intend to vigorously defend against these claims."

CoBank is a member of the Farm Credit System, a network of cooperatively owned banks set up in 1916 to provide credit and other financial services to the rural and agricultural sector. The FCA's rule updates capital requirements and redefines what constitutes capital in the calculation of a bank's leverage ratio.

Some of the other plaintiffs in the case include Catholic United Investment Trust, Federated Life Insurance Co. and Thrivent Financial for Lutherans.

The case is Catholic United Investment Trust et al v. CoBank, ACB, U.S. District Court, Southern District of New York (Foley Square).

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