2012

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

Seven of our colleagues in Dechert’s active CLO group represented the firm at the first annual IMN CLO and Leveraged Loan Conference in New York a few weeks ago. Strong interest in the collateralized loan obligation technology meant a capacity crowd of more than 750 managers, arrangers and investors, often leaving panel discussions with standing room only.

As participants reviewed CLO performance over the past five years, the theme emerged that CLOs weathered the crisis well compared to other structured finance vehicles. The CLO technology performed as advertised: protecting senior investors and amortizing senior notes during periods when coverage tests triggered.Continue Reading First Annual IMN CLO and Leveraged Loan Conference Update

For the last few weeks, I’ve been writing about investing in distressed bank assets, with a particular focus on the European markets. As you know, we think there are huge opportunities as the European banks disintermediate to meet capital thresholds, while the economy in Europe grinds slower and slower. Last week in this blog we talked about considerations on the sell side. Now, near and dear to my heart; the buy side.

First, we can start by thinking about everything said in last week’s article on the sell side and turn it over and look at it from the buy side. The asset pools will continue to be heterodox. The collateral, the loan documents, the economic terms of the loans will all be heterodox. Notwithstanding my plea to the sell side to get their house in order before pools are exposed to the marketplace, you should anticipate that pools will not be cleaned up for prime time before being exposed for sale. Files and data tapes will be incomplete and will be corrupt, documents will be missing, and underwriting information will be woefully hard to come by.

That’s what it is, get over it. We play the cards we’ve been dealt and we bid on what we got.Continue Reading The European Bank De-Risking Continued: The Buy Side

Last month three of our colleagues attended the Distressed Debt Conference sponsored by CREFC at the New York Athletic Club. Since the topics of distressed debt and loan sales are frequently covered by CrunchedCredit, we thought an update on this conference was worth providing. For those of us not in the New York office, travelling to NYC is always an excellent opportunity to catch up with clients and colleagues. Given that we were talking about distressed debt and there is a lot more of it than there used to be, it was a welcomed change to see that the mood of the conference was very upbeat, and that there was general enthusiasm about the numerous opportunities available in the distressed debt market. Continue Reading CREFC Distressed Debt Conference Update

Sometimes a bank just has to sell assets. For many banks confronting capital shortfalls, this is one of those times. Last week, we wrote generally about the "Investing in Distressed Bank Assets Conference" in London. Great conference. Marquee headline: EU Banks Will Sell Risky Assets. Time for a deeper dive into issues confronted by the sellers. 

So, if you want to sell a big pile of assets (steaming or otherwise), what do you do? You can certainly hire one of the well-known brokers (er, I mean loan sale advisors) in the market and tell them to have their way with you. They will do some level of loan file organization; produce some type of tape; produce a book (pretty pictures); and set up a war room. They will run a public auction process. They will jawbone the bidders.  Do they do a really good job? Read on. Is this the only option? No.Continue Reading Time to Sell the Silver

Well, that didn’t take long . . . Flashback to last month, when we highlighted two eye-opening judicial decisions from Michigan that could potentially have a dramatic and costly impact for recourse guarantors of many CMBS loans.  The Cherryland and Chesterfield cases provoked widespread feelings of uncertainty and unease, as well as the belief that the courts had sacrificed the parties’ (and perhaps the entire industry’s) intent in exchange for a strict reading of the loan documents.  Despite the supposedly nonrecourse nature of the loans at issue, guarantors were faced with the possibility that they could be stuck with a whole lot of personal liability, simply because of a borrower’s inability to pay back its loan when due.  If upheld and looked to as persuasive authority in other jurisdictions, some believed the Michigan cases could run a wrecking ball through the foundation of American real estate finance.Continue Reading Michigan Legislature Proposes Bill in Response to Recourse Cases

Last week, I spoke in London at a conference, “Investing in Bank Assets” sponsored by the Association of Financial Markets in Europe (AFME). The Conference had a titillating, if a tad alarming, subtitle “The European Purge Begins”.

The question is, of course, is it true?  The purge, I mean.   Is there a European purge afoot, and are there massive opportunities to invest in European bank assets? I, for one, certainly hope so. 

Let’s test the case. Those who read this blog regularly will be aware we’ve been chirping about these opportunities for quite some time. Having participated on one side or another in most of the recent European banks’ initiatives to dispose of dollar denominated US assets, we’ve become quite fond of this nascent trend. And, not to bury the lead, we think there is a very large opportunity in the disintermediation from European banks, and a particularly large opportunity with respect to US commercial mortgage loan assets held by our European friends over the next 12 to 24 months. By the way, kudos to AFME, Gilbey Strub, Managing Director for Resolutions and Crisis Management at AFME and her colleagues for putting on a terrific show. It was co-sponsored by Dechert and by Alvarez & Marsal.Continue Reading MORE ON OPPORTUNITIES IN EU BANKLAND