CrunchedCredit : Capital Markets Finance and Real Estate Attorneys

That great whooshing sound you heard a few weeks back may have been the air being sucked out of the room for thousands of warm bodies that penned recourse guaranties on (now) underwater loans during the market’s run-up. The cause: two recent cases coming out of Michigan (Wells Fargo Bank, NA v. Cherryland Mall and  51382 Gratiot Avenue Holdings v. Chesterfield Dev. Co.) sticking recourse guarantors with deficiency judgments on heretofore non-recourse loans based on the interplay of two fundamental tenets of CMBS lending – “bad boy” carve-outs and single purpose entity covenants.

Non-recourse lending is a lynchpin of American real estate finance. The lender is limited in the exercise of its remedies upon default to the collateral – for all intents and purposes, the Borrower gets a check at origination and a put at maturity should things go south. But there are limits – carve outs for fraud, selling the property, stealing rents, filing bankruptcy and other naughtiness will give the lender the right to look to the guarantor to make good on the loan.
 

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The ASF 2012 Conference held last month in Las Vegas was a success by any measure and attracted an impressive number of attendees (4,500).  Attendees were happy to escape New York and other chilly locales and attend some great panel discussions on securitization, regulatory developments and mortgage servicing (or, for some, at least read about those panels the next morning on their iPhones while waiting to tee off).  The owners of the Aria will definitely be able to make their mortgage payment this month with all of the money left behind by ASF attendees. 

My Dechert colleagues and I who attended the Conference cover almost all of the securitized asset classes.  As I described in my blog from the Conference, your particular view of the Conference depends largely on what asset class you focus on in your practice – autos and CLOs, for example, look very strong.  As someone who spent unimaginable amounts of hours of my pre-credit crisis life drafting RMBS deal documents, I yearn for the return of the public RMBS deals  - and not just because I miss spending my days (and most nights) trying to describe in “Plain English” the waterfall on a multi-group negative amortization deal.  I truly believe that we can’t have a meaningful recovery in the housing market without the return of private-label RMBS.  But regardless of what particular asset type you follow, there was undeniably a lot of buzz surrounding a couple of topics. 

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We at CrunchedCredit.com hope that our written words provide insight and amusement on topics our readers care about.  And although we enjoy putting pen to paper (so to speak), we are always looking for new ways to connect with our client base and readership. Recently, CrunchedCredit.com blogger Rick Jones joined his partners George Mazin and Holland  West of the Financial Services Group, Thomas P. Vartanian of the Financial Institutions Group, James Waddington of the Banking and Finance Group in Dechert's London office and Ian Hartman of the Corporate and Securities Group in the first installment of Dechert’s Video Briefing Series: “The Eurozone Sovereign Debt Crisis: Investment Risks and Opportunities.”

Spend a few minutes with Rick and his partners as they present their comments on the continuing sovereign debt crisis. Although the crisis began in Greece more than two years ago, fears of the financial contagion have spread to several other Eurozone countries. Such uncertainty continues to shape the behavior of the U.S. financial markets. The next few months will be critical in determining whether European leaders can hash out a long-term solution to deal with the debt crisis looming over the Eurozone countries. Watch this Video Briefing to find out why Rick thinks this could be an enormous opportunity for those who have capital and can absorb risk.
 

By Matthew Ginsburg

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For those of us with a rooting interest in Sunday’s festivities, it’s been a long two weeks. By Superbowl Saturday, Coach Belichick’s game plan will be set, the Material Girl’s setlist will be planned and the most famous ankle since Curt’s Bloody Sock will (hopefully) be mended, and it is with that in mind that I’ll suggest some pre-game reading to pass the hours leading up to kickoff.

As I mentioned in my post from Miami, our industry faces a mountain of maturing CRE debt in the next 24 months. We’ve been dusting off our default letters, updating our pre-negotiation agreements and spending a lot of time talking with our Bankruptcy, Business Restructuring and Reorganization group about how we can help our clients. This week, Dechert partners Michael Sage (who just happens to be on his way to Indianapolis this weekend to cheer on the Pats) and Brian Greer published an article detailing a recent Delaware Bankruptcy Court decision confirming that in multiple-debtor Chapter 11 cases, the cramdown rules must be applied on a per debtor basis, as opposed to a per plan basis (this is really good news for lenders with performing collateral that get caught up in a sponsor’s mass bankruptcy filing). Michael and Brian see this decision as having a significant impact for securitized debt stacks. Also, next week, Kathy Burroughs, Jon Rini, Jill Lavacchia and I will be publishing an article summarizing recent case law following in the wake of the Stuytown decision and another decision striking down the assignment of bankruptcy voting rights from a junior lender. Lastly, both CrunchedCredit blogger Rick Jones and his partner and FRE Group co-chair Joe Heil were interviewed by Law360 this week – offering their thoughts on market conditions and areas of opportunity in 2012. The interviews can be found here and here.

I hope all of our readers enjoy the game, whether you’ll be rooting for NFL MVP Tom Brady and the AFC Champion New England Patriots, or that other team.

By Matthew Clark
 

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We’ve been writing a lot recently about the likelihood that European banks and, to a lesser extent, U.S. banks would be strongly incented to sell assets to improve capital ratios. We had a client briefing in New York on the Eurobank crisis a few weeks ago. We brought together our North American and European regulatory and transactional counsel to cover a wide range of issues from the sale of assets to rescue capital. We had a lively conversation on the panel and with the audience about asset sales. It was pretty clear to one and all that if assets are not disintermediated, bankers will be defenestrated. Given the choice, we are pretty sure the banks will sell assets.

De-risking of banks’ balance sheets might be less than terrific macroeconomic policy at a time when economic activity is weak and could be very bad if it touches off a powerful credit contraction and a descent into a continent full of zombie banks. That’s bad. But, always look on the bright side of life, in a Life of Brian sort of way. In the short to medium run, the velocity of transactional activity around financial assets will go up. Indeed, we have been very busy since mid-year buying, selling or financing pools of loans bereft of the love of the bank who made ‘em.

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