2011

What the hell is going on here? I’ve got a business to run, and it’s really annoying that I can’t sort out whether we’re in the early stages of recovery or on the cusp of another train wreck. When Dad taught me to drive, he had to keep saying “Don’t look at where you are but where you’re going.” Good advice. Yet only as long as I look at the road right in front of me do I feel OK. If my eyes wander to the horizon, I get really itchy.

This recovery feels very brittle. Oh, sure, transactional activity is way up. If Dechert’s practice is the first derivative of the broader capital markets (and I think it is), then things have been getting progressively more robust for the better part of a year now. We’re growing, we’re hiring, deals are coming in at a goodly pace. Yet, everyone I know with the slightest capacity for reflection is touchy, to say the least.

So let’s do a S.W.O.T. analysis of where we sit.Continue Reading What in the Hell is Going on Here Anyway?: A SWOT Analysis of the Financial Recovery

A new kid showed up on the CMBS block in 2010: the operating trust advisor, sometimes also referred to as, among other things, the senior trust advisor (the “OTA”). During the great recession and credit interregnum, investors dreamt of an independent third party who would represent the interests of investment-grade investors to protect them from the conflicted and potentially nefarious behavior of special servicers who were considered by some to be in bed with the B-piece buyer and to facilitate an improved flow of information on a real-time basis. Someone who would somehow be there for bondholders when pools began to wobble. When the New York Fed was rooting around for a structure for TALF that would not only execute well but would also provide a learning opportunity for the market, they listened to the IG bondholders, and the OTA was born.

For the regulatory community and some elements of the investor community, it was love at first sight. But by late 2010, some thought that the OTA was going the way of the Edsel. A one-hit wonder. Then, in April 2011, the regulators embraced the OTA in their proposed risk retention rules. And now the OTA may be here to stay. Perhaps bowing to the inevitable, most recent 2011 CMBS conduit deals (and some single asset deals) have utilized some form of an OTA. Continue Reading The Operating Trust Advisor: Here Today, Here Tomorrow

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.

Continue Reading CREFC Convention Recap and Making Way For Duck Boats

Greetings. What ever happened to those REMIC rules regarding property releases that we blogged and wrote about in 2009 (pdf) and 2010 (pdf)? The REMIC rules were revised in September 2009 to add flexibility to facilitate certain types of servicing transactions. However, under the new rules, if a property release occurs, the loan had to be retested to determine whether it continued to be principally secured by real estate (e.g., secured by no more than 125% loan-to-real property value ratio).

Quite a price for a bit more flexibility! This caused enormous consternation as it was promulgated during a massive cyclical downturn in real estate values which resulted in many properties not being able to pass the new “principally secured” test if a release occurred. And many loans contemplated such a release. In a bold recognition of reality, something not entirely common in regulatory circles, the IRS issued Revenue Procedure 2010-30 (pdf) establishing a safe harbor for certain “grandfathered transactions” and “qualified paydown” transactions. Under the Rev Proc, a loan would not lose its status as a REMIC “qualified mortgage” even if the “new” loan-to-real estate value ratio was in excess of 125% (i.e., if the loan was less than 80% secured by real property) so long as the loan was “grandfathered,” meaning that it was closed on or before December 6, 2010 (and not amended after that date).Continue Reading REMIC Rules Revisited: Got Compliant Property Releases?

This might not be man bites dog news, but in the structured finance world, it ranks pretty close. A U.S. bankruptcy court has ruled that a borrower can agree not to file bankruptcy.

It all starts with the development of a high-end condo project in Aspen, Colorado called Dancing Bear Aspen.

In December 2010, the Tenth Circuit Bankruptcy Appellate Panel affirmed a Colorado bankruptcy court order granting a motion to dismiss a bankruptcy petition filed on behalf of DB Capital Holdings, LLC (the “Debtor”) which developed Dancing Bear Aspen. The Court affirmed the lower court’s finding that the Debtor’s LLC Operating Agreement expressly barred the Debtor from filing for bankruptcy.Continue Reading LLC Operating Agreement Prohibiting Bankruptcy Filing is Enforceable

Early last decade, two Dechert partners, Tim Stafford and Dave Forti, published Mezzanine Debt: Suggested Standard Form of Intercreditor Agreement (pdf) in CMBS World. The article proposed a standard form of mortgage-mezzanine intercreditor that provided a portion of the bedrock upon which the architecture of CRE mezzanine lending would be built for the years to follow. At the time of its publication, burgeoning demand for mezzanine debt (and mezz lenders’ desire to create liquidity in their positions) had created a tension among mezz lenders, bond investors and rating agencies – the absence of a form ICA resulted in mezz debt being an inconsistent and pricey financing alternative. The CMSA (now CREFC) form ICA made mezz lending more predictable, less expensive and easier to trade. Continue Reading CMBS 2.0: Has the time come for an industry-form A/B Colender?

The process of transforming 2,000 pages of Dodd-Frank into 25,000 pages of regulations is well under way. Front and center is Risk Retention. I assume you, like me, have been studying the 300 plus pages of the proposed Risk Retention rules (known to the cognoscenti as the Risk Retention “NPR”) for the past several weeks getting ready for the June 10th deadline for comments, right? Oddly, almost a full month passed before the government actually posted the NPR to the Federal Register, something which is usually done in a matter of days. (Tea leaf readers, thoughts?)

We have visited Risk Retention in this Blog before, but today we want to really focus on premium capture as it seems to capture all that is wrong with the NPR. My first reaction to reading the words on the page: Where the hell did this come from? On the fifth read, same reaction. There was nary a hint of the premium capture monstrosity in either Dodd-Frank or in the whispering about the rule-making process before the NPR came out.  Continue Reading Premium Capture Kerfuffle: The Poster Child of What’s Wrong with Risk Retention

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”?Continue Reading SIFMA Spotlight Series: Risk Retention and Qualified Residential Mortgages