French investment bank Calyon has sued the London-based subsidiary of monoline bond insurer Financial Guaranty Insurance Company in the UK High Court, intensifying a legal battle over the validity of guarantees on debt instruments underwritten by the insurer.

The lawsuit, which was also levelled against a special purpose vehicle controlled by German bank IKB, was filed last week and concerned a transaction that took place in June involving collateralised debt obligations, financial instruments that parcel together asset backed securities.