CrunchedCredit : Capital Markets Finance and Real Estate Attorneys

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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The American Securitization Forum (ASF) Conference returned to Las Vegas on Sunday after short stints in DC and Orlando.  As you may recall, the Conference’s last hurrah in Vegas in 2009 was not well received by the Fourth Estate – the juxtaposition of investment bankers meeting in Sin City with the then-recent creation of the $700 billion Troubled Asset Relief Program was low hanging fruit for a media eager to assign blame for the credit crisis.  Three years later, over 4,000 securitization professionals, including investment bankers, originators, servicers, trustees, accountants and of course, lawyers, are back in full force here in Vegas.  The mood here stands in stark contrast to 2009 when we were staring into the abyss.  We have since survived the worst of the credit crisis and have been steadily rebuilding the securitization machine.  The dismay and depression of 2009 have been replaced with the sense that we can, in fact, see the light at the end of the tunnel.  But how close we are to the end of that tunnel differs greatly by asset class.  For example, Monday’s CLO panelists noted that they expected to see continued strong growth in 2012, building on a very successful 2011.  On the other hand, the future of non-agency RMBS is unfortunately not looking as bright in 2012.  Panelists discussing the 2012 Market Outlook again pointed to the regulatory as well as domestic and international fiscal issues that still need to be resolved before we can see a true recovery in securitization.  Looking back at the 2009 ASF Conference Agenda, I found that the program included “substantive panels on critical policy challenges confronting the market, including TARP, TALF, mortgage finance and foreclosure avoidance legislation, loan servicing and loss mitigation initiatives, GSE reform, and what to expect from the new Congress and administration.”  Well, we’ve worked our way through TARP and TALF.  For better or worse (mostly worse) we now have Congress’s answer to the credit crisis – the Dodd-Frank Act.  And of course, GSE Reform is still TBD or possibly RIP.  So the near future will in many ways be similar to the past few years: more proposed rules and more comment letters to the SEC et al. I’ll follow up with more news from ASF which concludes Wednesday and will provide insights from the eight other Dechert attorneys here with me in Las Vegas.

By Ralph Mazzeo

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The image of the cresting wave looming behind the dais in the Loews' Americana Salon during Douglas Holtz-Eakin’s keynote address posed a central, if unintended, question that was addressed by more than one speaker during the three-day conference.  Are we riding a wave to recovery or facing a deluge of maturing debt?  For most of the 1,200 industry participants that occupied Miami’s South Beach for CREFC’s annual January conference last week, there seems to be no certain answer (other than almost unanimous agreement that South Beach is a better Winter destination than our Nation's Capitol).

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Over a thousand lenders, borrowers, servicers, lawyers and other service providers have descended on Miami for three days of networking, meeting and doing things you just can't do in DC. After a Sunday spent checking in, catching up and Tebowing, the conference kicked off in earnest this morning. I started my day with a PSA Task Force meeting - an important industry initiative. The committee is working hard to develop a standardized format for the more mechanical aspects of a pooling and servicing agreement, with an eye toward making loans work for borrowers and servicers alike (Rick offered some prescient comments regarding the importance of emphasizing the exercise as something that will, at the end of the day, make the servicing of securitized loans more efficient and user friendly). As I type, I'm listening to the opening general session, an overview of CRE fundamentals and where we are in the cycle (the common themes being the effect of the jobless recovery and the specter of $700 billion or so of debt maturing in the next 24 months). Tonight, Dechert will welcome over two hundred clients and colleagues for dinner at Asia de Cuba - we are looking forward to a great opportunity to talk to our friends. Tomorrow's schedule is similarly packed, highlighted by a keynote address by Douglas Holtz-Eakin. We will continue to blog from the conference.

By Matthew Clark.

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What’s with all these public CMBS offerings?  And what about all that rule-making?  The registered market has otherwise been frozen since the pre-crisis days, and the cloud of heavy-handed regulation looming over our heads is anything but an invitation to dust off your public shelf.  Moreover, given that some of those regulations may be (or have been) applied in the 144A context, shouldn’t one be concerned about the private market before we even think about re-entering the public space?  And all of that is without even considering the general mid-year market slump.  To address these critical questions and the state of the galaxy as we know it, CREFC held an after-work seminar recently, hosted by Dechert, entitled “Review and Outlook for Public CMBS Offerings.”

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Ahh, Miami. I'd say it's good to be back here at the Fontainebleau for ABS East 2011 but it's been pouring and exceptionally windy so my time outdoors will be limited.  Dechert attorneys Mac Dorris, Ralph Mazzeo, John Timperio, Cindy Williams, Larry Berkovich, Lorien Golaski, Andrew Pontano and I hosted a well-attended cocktail party Sunday night. It was great to catch up with our friends/clients in person.

Monday morning began with a general session where some blurbs about risk retention from this October 14 New York Times article were projected on two very large screens. I later attended the “Evolving Risk Retention Requirements” panel before lunch. It's been a while since the joint regulators released the credit risk retention NPR back in March of this year. In response, hundreds of comment letters were submitted. Click here for the ones posted by the SEC. We have blogged repeatedly on this topic here at CrunchedCredit.

Recently there has been chatter that the regulators may re-propose a new risk retention rule for comment in lieu of promulgating a final rule.

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Here in Boston, we've had a busy but productive week since the CREFC June Convention culminated –punctuated with more than a million hockey fans witnessing a parade of Duck Boats waddle through the Back Bay. The Convention itself saw a smaller (albeit similarly excitable) parade of lenders, borrowers, servicers and other industry participants descend on Manhattan for two days of networking, learning and discussion.

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Dechert LLP and Wells Fargo will be co-hosting the next CREFC After-Work Seminar on Tuesday, June 21 at the Omni Hotel in San Francisco. The topic of the seminar is "CMBS 2.0: A Securitization and Loan Level Perspective".  The program will explore what’s changed, what’s stayed the same and what CMBS 2.0 means for commercial real estate finance. Panelists will discuss lender/borrower issues including subordinate debt, recourse provisions, LTV and pro forma underwriting, investor topics such as bond structures and trust advisors, and the impact of potential new regulations on the industry. We have a diverse array of perspectives represented, so the seminar should be lively and interesting. The panelists will be Debbie Slogoff from Western Asset Management, Bill Stefko from H2 Capital Partners, Ross Stewart from Wells Fargo, and Chris Tokarski from Starwood Capital Group. I'll be blogging later this week with a recap of the seminar and some commentary.

By:  Kahlil T. Yearwood.

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For many of us, an annual right of summer's commencement, CREFC's mid-year conference has begun in earnest for the last time in Manhattan (we'll be in DC at this time next year). I'll also note that for the second straight year, the conference's first day coincides with Game 6 of a rather hotly contested playoff series (go Bruins). The rooms seem packed - attendance this year is about a 1000 - a significant increase from 2009 - 2010. "Recovery" is being spoken with straight faces - notwithstanding the fragility seen over the past few weeks. Conversations between issuers and investors continue to expose battle lines - how long until we see a $5 billion deal? Why doesn't this seem different than CMBS 1.0? When will we see a public deal? What will happen with risk retention? We at Crunchedcredit.com are looking forward to discussing these issues with all of you over the next two days. You can also follow us @crunchedcredit as we tweet from the #CREFC conference.

By: Matt Clark, Stewart McQueen, and Matt Ginsburg.
 

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On May 5, SIFMA hosted a Spotlight Series: Risk Retention and Qualified Residential Mortgages.  It was immediately apparent that unintended consequences of the proposed risk retention rules (pdf) abound.

The panelists acknowledged that the regulators had a very tough mandate, and that the rules are way more complicated than anticipated.  It was estimated that approximately 60% of the proposed rule will make its way to the final rule, and that while feelings of annoyance with respect to the drafting of the proposed rule may linger, it is up to the securitization market participants to help the regulators provide us with a clear, workable final rule.

Under the proposed rule, calculation of the amount of required risk retention would be based on a percentage of the par value of the ABS interests in an issuing entity.  The discussion began with a couple questions some of us have already been asking …

What do regulators mean by “par value”?  What is an “ABS interest”?

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Writing from the Acela again, en route to Back Bay Station after a short trip to New York to attend a CREFC After-Work Seminar we hosted. The space at our Bryant Park offices was full - I took a seat in the last row next to interim CEO John D'Amico (he seemed really pleased with the turnout). The meeting was the latest in a series of after-work seminars that CREFC is holding throughout the country (next stop is Dallas). The topic - “A Case Study in Lending from the Perspective of Both Portfolio and Conduit Lenders” - was moderated by Whit Wilcox (HFF) and included panelists Michael Shields (ING Real Estate Finance), Mike Doyle (CIGNA) and Schecky Schechner (Barclays Capital). The panel explored their thinking on loan applications from the perspective of the three corners of the CRE banking world - life insurance companies, bank balance sheet lenders and CMBS conduit lenders.

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2500 of my best friends and I spent three days at the MBA’s annual CREF meeting in San Diego last week. By now, it’s old news, but, indeed, the mood was very upbeat. Just like the days of yore, everyone spent every working moment in lender-mortgage banker meet and greets, exchanging braggadocio over pipelines, products and relationships. People even had the energy to return to old fights and grudges: portfolio lenders vs Wall Street squaring off after sharing a fox hole these past three years. Most heartwarming.

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ASF 2011 kicked off yesterday, February 6, at the Orlando World Center Marriott.  Dechert attorneys Malcolm Dorris, Ralph Mazzeo, Patrick Dolan, John Timperio, Cindy Williams, Andrew Pontano, Lorien Golaski and I are hosting a cocktail party for clients and friends here this evening.

Congressman Scott Garrett (R-NJ), Chairman of the House Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises (GSEs), delivered the featured address this morning, February 7. In his new role as Chairman, Congressman Garrett will be a key player in the debate over the future of the GSEs, the implementation of the Dodd-Frank Act and the continued development of a legislative framework for a covered bonds market in the U.S.

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I'm sitting in the Grand Ballroom at the JW Marriot (filled to capacity) and listening to Tucker Carlson give his thoughts on likely GOP challengers to the President. I've seen him before - he did a great bit with Paul Begala a few years ago at the MBA in San Diego; very likable and very, very funny (told a great story about receiving a call from Donald Trump that I don't think I can reprint here). His early pick for the Republican nominee is New Jersey's Chris Christie.

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The industry descended on our Nation's Capital this morning for the 2011 CREFC conference: "Commercial Lending: The New World Order". It was -2 at Logan when my shuttle took to the air - needless to say I'm more than happy for the opportunity to spend a few days with friends, clients and colleagues in a warmer climate. (Current DC temperature is 24 degrees - not quite Stone Crabs at Joe's, but I'll take what I can get.) 

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I’m writing from Pennsylvania Station on a particularly bad day for our national rail service (Amtrak) – apparently the heavy rains and gusts wreaked havoc with electrical wires running both North and South, delaying (or cancelling) every Acela, Keystone, Silver Meteor, Silver Star and Vermonter scheduled to leave our country’s busiest transport hub. The (woefully underrated) holiday movie Love Actually opens with Hugh Grant’s musing that when faced with the general gloominess of the world he considers the smiles of arriving Heathrow passengers as they greet their waiting loved ones. On this first day of December and first night of Hanukkah, however, I’m fearful that Mr. Grant would be sorely disappointed in the zeitgeist of the half-million or so travelers looking to depart for Stamford and Boston, Philadelphia and DC and the balance of the Northeast Corridor.

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Last Thursday - an archetypal rainy and windswept late October afternoon in New England (think orange and red leaves underfoot, Finny and Gene walking to class, etc., etc.) - I attended the annual Symposium offered by the Real Estate Council of Boston College . In attendance, perhaps one hundred and fifty lenders, developers, investors, lawyers, brokers, professors and priests. As someone that participates in a fair number of these things, I can't say enough good things about the quality of the presentation coordinated by Cushman's Rob Griffin and the balance of TREC members. Even the welcoming remarks - in this case by BC President Fr. William Leahy, S.J. - included a thoughtful recognition of the state of the CRE market (having, in the past 5 years, acquired more than 50 acres of prime real estate, commenced construction of a massive new academic building and committed the bulk of a $1.5b capital campaign to the construction of student housing, it's clear this guy knows his way around a performance bond). His take - buy, never sell (not terribly surprising given his Boss' investment horizon). 
 

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The final day of ABS East in Miami closed on Tuesday late afternoon and we’re back home with no suntans.

Those of us who didn’t overdo it on Monday evening (we won’t mention names) started Day 3 at a panel discussion titled “Lessons from the Financial Crisis: Required Steps for Rebuilding the Investor Base and Future Sources of Liquidity.”

Talking about RMBS, the consensus is that the economics just aren’t working for issuers, let alone the other impediments to getting deals done these days. Current interest rates on jumbo mortgage loans are too low. Over the next six months, however, at least one panelist thinks spreads will come in and the dearth of alternative investment grade securities that are attractive to investors will help the RMBS sector.

One panelist said that too much leverage cracked the world economy and if institutions become so highly levered again, it will happen again. Insofar as regulations are concerned, many of us agree with him that it is irresponsibility that needs to be regulated.
 

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Dechert attorneys kicked off ABS East by hosting a Day 1 cocktail party at the Fontainebleau that was well attended by our friends and clients.

Day 2 of ABS East is underway. The Monday opening panel-- Restoring Confidence and Rebuilding the Industry: The Role of Securitization-- drew a pretty full house.

The general consensus is that the regulatory bodies are in the way and will cause delay in the recovery of the securitization market. I won't go so far as to claim it wasn't broke and didn't need some fixing, but it's clear the fixing to come is going to take a while. Without definitive rules, potential issuers can not evaluate the cost to enter the market. If we had a more targeted response to our problems from Congress and the regulators we could avoid this delay.

On the resi front, clearly the GSEs have crowded out private issuance, which has been facilitated by Congress and the Fed. Whereas commercial real estate found a natural bottom, the feeling is that resi never did. And, as one panelist put it, "distressed loans continue to pose a lingering cloud preventing meaningful recovery." The question was posed as to why there was nothing much after Redwood in the resi space. Again, the GSEs are dominating that space. Conforming loan limits have never been higher and it's increasingly more difficult to even qualify for a jumbo loan under current underwriting criteria. With CMBS, it's possible to get a reasonable number of loans. RMBS requires many more loans and there's competition for the best loans.

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We’re looking forward to ABS East October 3-5. More than 2,200 attendees are expected to gather at the Fontainebleau Miami Beach to discuss current topics in securitization.  Hot topics this year include Lessons from the Financial Crisis, Restoring Confidence and Rebuilding the Industry, the Role of Securitization in Revitalizing the Economy, Assessing the Changing Face and Needs of ABS Investors, the Role of the GSEs, and U.S. Regulatory Developments.  Dechert attorneys Patrick Dolan, Mac Dorris, Ralph Mazzeo, John Timperio, Cindy Williams, Joe Beach and Laurie Nelson will be in attendance to participate and meet with our friends and clients.

Tuesday morning, October 5, Dechert partner John Timperio will participate in the “Required Steps for Rebuilding the Investor Base and Future Sources of Liquidity” panel.  Tickets are going like hotcakes for this “don’t miss” Tuesday morning opener.

Stay tuned as we will be blogging live from Miami.

By Ralph Mazzeo and Laurie Nelson.

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The general theme of the American Securitization Forum Sunset Seminar held on Wednesday at Dechert's NY office was the unintended consequences of the Dodd-Frank Act. Our largest conference room was packed with over a hundred securitization industry players all searching for the best predictions on the shape of the massive amount of regulations coming our way over the next few months. First on the agenda was a discussion of the repeal of Rule 436(g) and the resulting Securities Act liability for rating agencies. Dodd-Frank's intent was to improve the value of ratings by making rating agencies more accountable to investors. Unfortunately, the rating agencies would not consent to their ratings being disclosed and the entire public securitization market was stopped cold. Not helpful for a market struggling to return to "normal.” We have the temporary fix issued July 22 of this year in the form of an SEC No-action letter green lighting the omission of ratings in registration statements, but what happens next? Most likely-- the SEC will amend Reg AB Items 1103 and 1120 to not require ratings in registration statements. However, the SEC is considering requiring ratings in non-ABS registration statements, so how likely is this most likely solution really? Other ideas—in no particular order of likelihood: Congress will reinstate 436(g). Doubtful. The SEC will extend the No-action letter indefinitely. Perhaps. Ratings agencies assume the liability or are indemnified by issuers. Maybe. One panelist predicted that in the short run, we'll have uncertainty; and in the long run, more uncertainty. Consensus is that there's a long road ahead and harmonization amongst the regulators and applicable agencies is key. Also keep in mind as this unfolds that rating agency accountability is also to be achieved under Dodd-Frank by new private rights of action against ratings agencies (and other parties) leading perhaps to nationally certified class actions. As a result, the rating agencies will be seeking comfort and indemnity from issuers on the accuracy of data given to them in the course of their diligence.

The discussion turned to conflicts of interest and the prohibition against engaging in any transaction that would result in a material conflict of interest with respect to any investor for one year following closing (other than hedging activity or market-making/sales to provide liquidity for the ABS). An example of this conflict would be underwriting ABS then shorting the synthetic ABS that references the first ABS. One issue raised with respect to compliance is the problem of information barriers between departments at investment banking institutions.
 

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