May 2012

May a Chapter 11 plan permit a debtor to auction property free and clear of a creditor’s lien while preventing that creditor from credit-bidding the amount of its debt?  A question that split the U.S. Circuit Courts was settled when earlier this week the Supreme Court came out 8-0 on the side of the secured creditors in a decision of paramount interest to lenders with bankrupt borrowers (Justice Kennedy took no part in the decision).

The concise, 12-page opinion penned by Justice Scalia in RadLAX Gateway Hotel v. Amalgamated Bank concludes that the debtor’s proposed auction procedures – which prevented the secured creditors from being able to credit-bid – could not satisfy the Code’s requirement that a cramdown be “fair and equitable” to non-consenting secured creditors.  Earlier cases from the 3rd, 5th and 7th Circuits had created a split that called into question what had been, for many, an accepted tenant of the 363 sale – that a secured creditor could protect itself from the potential of a depressed auction price by credit bidding and obtaining the auctioned asset for its own account.Continue Reading SCOTUS’ RadLAX Decision Affirms Lenders’ Rights to Credit Bid in Chapter 11

So after another bad news week in Europe, I’m a bit gloomy about the future of the capital markets. As we try to run a business and help our clients, I’ve got this narrative running through my head about Europe. I keep running this movie back and forth in my head hoping it will help me tease out what will be in the last reel. Look, we try to make these blogs contain some bon mots of immediate utility. I’m not sure what follows has any immediate utility, but I hope someone will tell me what I’m missing here.Continue Reading ROME’S BURNING: WHAT AM I MISSING?

Earlier this month I was a panelist at the HOPE NOW REO Symposium in DC. The Symposium brought together residential mortgage loan servicers, community non-profits, private equity investors, government agencies and lenders to discuss the growing number of REO on the balance sheets of Fannie, Freddie and private mortgage lenders. I participated in a panel that focused on how private investors in REO might finance their investment in a pool of REO. One key financing option for investors will be the securitization of the rental income from the REO. Of course, in order to move this forward, we will need rating agency criteria.Continue Reading REO to Rental: Treating the Symptoms and Not the Disease

Rialto Capital – Series 2012-LT1 is a done deal. It represents a huge innovation in commercial real estate structured finance. This is the first liquidating trust vehicle successfully securitized in the United States since the famous RTC N Series and its progeny of the mid-1990s. Briefly, the transaction involved the pooling of sub-performing, non-performing and REO assets pursuant to a plan to liquidate the assets in a measured but reasonably expeditious fashion. The sponsor holds the equity and a single class of debt was sold to investors. The deal has closed; the sponsor has stable, predictable match term financing.   Bond buyers got a transparent and robust structure with strong subordination, management and downside protection. A powerful new tool has been provided to the commercial mortgage finance industry.Continue Reading Innovation In Securitization Is Here: And It’s About Time!

With little good news on the horizon for the U.S. residential housing market, public and private programs offering the sale of bulk residential REO is, in many circles, the topic for real estate investment.  The REO-to-Rental play is not without its risks – questions about the availability of financing and the viability of a structured exit remain as key questions.  Still, the strategy may present a favorable opportunity for banks and investors alike.Continue Reading Own-to-Rent: New Approach to Overflow REO Gaining Attention