Does A Red Carpet Full Of Black Swans Matter?

By Rick Jones on Posted in International Economies, Regulatory

It’s coming up on awards season.  The Emmys were last week and weirdly, I got a thought bubble about nominees in the Black Swan category, walking the red carpet looking for attention!  Think the Masquerade scene from Phantom of the Opera when the Phantom comes prancing down the stairs to harsh the festivities (at least he sang well).  

We have some obvious nominees today.  But are they the real thing?  Will they move markets?  We have, with some reason, become inured to the disruptive headlines howling about threats to our way of life.  Is there simply too much chaos out there to pick out the things which are really relevant from the noise?  Our 24-hour news cycle is hardly helpful, is it?  The talking heads, with practiced expressions of concern, seriousness of purpose and faux competence, serve up our daily quantum of fear and distress (Film at 11!).  Don’t they seem almost gleeful to report yet another potential disaster?  With breathy anxiety, designed to tug at our atavistic fight or flight instincts, they repurpose as news exaggeration, hyperbole, vague allegations, unconfirmed reports and sheer speculation.

The scary part is, of course, that buried and obscured in all that noise might be real news, things that investors and market participants really ought to be paying attention to because they will matter.  The trick is sussing out the stuff that matters from the stuff that doesn’t.

So, we really do need to take into account these aspirational swans.  One of them could be that figurative dead archduke.

Let’s take a stroll along the red carpet and chat up some of these swans.

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Dechert OnPoint: Term SOFR is Here!

By Morgan Nelson on Posted in DechertOnPoint, LIBOR

While many of us may be sneaking in one final summer vacation, the ARRC showed no signs of a slowdown as they formally recommended the CME Term SOFR Rates. Issues with SOFR aside, it looks like the rate really is here to stay. Read more about the latest developments from Dechert’s LIBOR task force in their latest Dechert OnPoint: Term SOFR is Here – The ARRC Recommends CME Group’s Term SOFR Rates for Use.

SASB: The (Shotgun?) Marriage of Mortgage and Mezz

By Rick Jones and William Cejudo on Posted in Commercial Mortgage Finance, Securitization

There’s a lot of reasons to structure a large loan destined for securitization as a mortgage in part and a mezzanine loan in part.  Sometimes it’s simply that the borrower is needy while the capital markets are charry.  In that case, the lender whacks up the credit into a mortgage loan for SASB execution and assumes (hopes) there’s someone out there with sufficient acumen, optimism or naivete to buy the mezzanine loan.  But sometimes, there are other reasons to divide a loan into a mortgage and mezz. Continue Reading

It’s Time for The Industry to Engage on SOFR’s Voldemort Problem

By Rick Jones on Posted in LIBOR

It’s a rule around here that I don’t write on the same topic twice in a row because if you don’t get bored, I will.  I am making an exception this week to revisit last week’s blog about the industry’s failure to take on, or at least discuss, the considerable negative externalities of transferring our entire business from LIBOR to SOFR while we have time.  The problem, of course, and I recommend last week’s commentary for a more fulsome discussion (or screed), is that we are barreling toward a world in which trillions of dollars of floating rate debt will be based on an index that is not credit-sensitive and which may (and likely will) cause a transfer of value from the providers of capital to the users of capital.

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The Powers That Be Are Rallying Around SOFR and That’s a Mistake

By Rick Jones on Posted in LIBOR, LIBOR Reform

To my gentler readers, first an apology for this interregnum in publication.  I’ve been sitting on this commentary like a hen on an egg for weeks.  All I can say is having to work for a living gets in the way of writing about interesting stuff.

It’s now July and supposedly the transition from LIBOR to SOFR is almost already a done deal.  Anyone notice that happening?  Not to bury the lead but it hasn’t happened.  Note that even the ARRC, between harrumphs about the slow take-up of SOFR products, has said that MAYBE they’ll let folks use Term SOFR soon (although they are still being a bit cagey on when and, perhaps more importantly, who will be given that privilege).  That’s not good if we’re gonna base an entire floating rate marketplace on SOFR.

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Did the Distressed Debt Opportunity Slink by Me When I Wasn’t Looking?

By Rick Jones on Posted in Uncategorized

I have spoken to a number of people over the past months who have raised money or built technology to take advantage of a broadly anticipated distressed opportunity which was certainly to be occasioned by the pandemic.  Did I miss it?  Was I distracted by the First Family’s secret service chomping dog controversy or the upcoming UFO big reveal?  Did it get by me when I simply wasn’t at my desk, making coffee? Continue Reading

You’re Invited: Permanent & Private Capital Summit 2021

By Morgan Nelson on Posted in Commercial Mortgage Finance

Alongside co-sponsors ING and KBW/Stifel, next week Dechert is proud to be (virtually) hosting the 2021 Permanent & Private Capital Summit. This two-day conference, happening on June 2nd and 3rd, will cover the latest developments and trends in the private credit industry. You can view the full agenda now and register here for this can’t miss event!

Dechert OnPoint: Shari’a Compliant Investment Agreements Do Not Qualify for Safe Harbor

By Haleh Rabizadeh on Posted in DechertOnPoint

Sharia law prohibits interest, naturally putting financial minds to work on how to build structures around this religious prohibition. But a recent ruling has found that such investment agreements do not qualify for safe harbor provisions of the bankruptcy code. Shmuel Vasser breaks down the 100 page long complex opinion concisely and clearly sharing with us the critical potential implications of this decision, as the case goes through the appellate process. Read all about it here: A Recent Ruling that Shari’a Compliant Investment Agreements Do Not Qualify for Safe Harbor Treatment May Have Broader Implications.

 

 

SOFR Transition: It’s Not Done Yet!

By Rick Jones on Posted in LIBOR Reform

We’ve written before about our anxiety regarding the fact that SOFR does not really seem fit for purpose to support commercial mortgage lending or indeed any cash product.  (The nonsense about charging interest in arrears should have been a tell, to be honest.)  Of course, the real problem is the absence of a credit-sensitive component to the new index, particularly in this time and place.  That strikes me as almost fatal to the ambitions of the ARRC to remake the market in its image.  SOFR is an open invitation for value transfer from lenders to borrowers at a time when inflation is closer than the horizon and an inexorable climb in the short end of the yield curve is most certainly on offer.

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