2013

It’s the Christmas season and this week we got the Volcker Rule. How seasonably appropriate! Now, I get the whole Christmas trade. You’re good, you get toys; bad, coal in the stocking. But this is bad in a regifted, four-year-old fruit cake sort of way. My desk now groans under the 1100 pages of Volcker whilst I’m trying to gin up some Christmas cheer – it’s not fair. We at Dechert will be sending out a more thoughtful analysis of the Rule by way of Dechert OnPoints, with more to come as the digesting process continues.Continue Reading Santa-baby: Volcker in the Sack

Dow at 16,000, government up and running and the first Single-Family Rental deal now safely in investors’ hands – we are in pretty good shape. As is our tradition here at Crunchedcredit.com, we present to you our nod to the stories and happenings that struck us as amusing or important. (Or both). (Or neither).Continue Reading CrunchedCredit.com’s 4th Annual Golden Turkey Awards

Well, Halloween has come and gone and with the annual bacchanal of faux frisson over zombies, vampires and the like behind us, can we also put away risk retention anxieties like one of those annoying and morally disturbing Miley Cyrus costumes? Unfortunately not. The industry’s comments have all been neatly bundled and delivered to the multi-headed hydra which is the ad hoc joint rulemaking committee of the Office of the Comptroller of the Currency, HUD, the Board of Governors of the Federal Reserve System, the Federal Housing Finance Agency, the Securities Exchange Commission and the FDIC and the leading lights of the regulatory apparatchik are presumably cuddled up before the fireplace this holiday season with a glass of Bordeaux diligently reading comment letters.Continue Reading Risk Retention Follies – Part Deux

We have previously written here on CrunchedCredit about Chinese banks lending in the U.S. With recent news that Chinese state-owned developer Greenland Group has agreed to purchase a 70% stake in Brooklyn’s Atlantic Yards development for $725 million, we have seen the first headline grabbing real estate acquisition of U.S. property by a Chinese investor. As the Chinese real estate market begins to cool, and the U.S. continues to be one of the few global real estate bright spots, it is unlikely that Atlantic Yards will be an isolated occurrence.Continue Reading Chinese Developer Makes Large Footprint in U.S.

Section 926(1) of the Dodd-Frank Act required the Securities and Exchange Commission (“SEC”) to adopt rules that disqualify securities offerings involving certain felons and other “bad actors” from reliance on Rule 506 under Regulation D of the Securities Act of 1933 (“Securities Act”). New paragraph (d) of Rule 506 was adopted pursuant to the mandate of Section 926(1) and became effective on September 24, 2013. Under such new paragraph (d) (“Bad Actor Provisions”) the involvement of bad actors in a private offering could have the effect of disqualifying the offering from the safe harbor exemption from registration provided under Rule 506. As such the Bad Actor Provisions require issuers that intend to rely on the Rule 506 exemption to undertake additional diligence.

A CLO’s capital stack often includes a portion of subordinated notes that are offered for purchase to institutional accredited investors (“IAI”) and/or accredited investors (“AI”). These IAI and AI purchasers typically meet the requirements to be considered covered purchasers under Rule 506. Due to the fact that IAI and AI purchasers meet the scriptures of Rule 506, CLO market participants have raised questions as to whether the Bad Actor Provisions will require participants in a CLO transaction to undertake additional diligence and whether such additional diligence could negatively impact the market for CLO subordinated notes.Continue Reading The recently finalized “Bad Actor” rules and their applicability to CLO transactions

Jens Weidmann, president of Deutsche Bundesbank, recently wrote a terrific piece in the Financial Times, making the point that the Faustian bargain between European sovereigns, their national banks, the ECB and EU policymakers to encourage European banks to gorge on sovereign debt may be politically attractive in the short run while being fundamentally a horrible idea. With a wink and nod, President Draghi of the ECB essentially told the world that the ECB would keep the European banks afloat. With that assurance in their pocket, and the gnomes of Basel III declaring sovereign debt riskless, requiring essentially no capital, the banks continue to buy their sovereign debt – and buy big. By doing so, the banks become enablers of bad fiscal policy, artificially lowering the risk premia on all risk assets (resulting in mispricing), and clogging their balance sheets with government IOUs. The result: The banks are less able to support the real economy.Continue Reading European Sovereign Debt and the Clogging of the Banking System

Writing at the beginning of the week in which the government is supposed to run out of money, it’s worth noting the cognitive dissidence between the political chattering classes who clogged the airways this weekend with threats of doom and other apocalyptic noise and what’s actually happening on my desk. If I wasn’t already numbed by the Giants being 0 and 6, it would have been really distressing. Listening to the doomsayers of the 24 hour news cycle on one hand, and returning to my desk on Monday morning and seeing the business of business humming along nicely with little energy around the ongoing government shutdown and potential debt ceiling break this week was really rather odd.

Continue Reading Budgets and Debt: The Cheshire Cat Apocalypse

The new Risk Retention Rule published jointly by the FDIC, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System and the Securities Exchange Commission, with a little help from the Federal Housing Finance Agency and HUD slouched into the light of day on August 28, in the lee of the holiday weekend. Reportedly, it’s been locked and loaded for months as the regulatory panjandrums wrestled over the politics of the Qualified Mortgage. Really? The day before the long weekend? Isn’t that a tell that it is less than entirely estimable? Didn’t Nixon resign on a Friday? It’s like maybe no one would notice the delivery of a long-anticipated 550 page opus which has, in its gift, the continued vitality of structured finance at large?Continue Reading Risk Retention Re-proposal: The Good, Bad, Ugly And Unintended

On August 28, 2013, six federal regulatory agencies (among them, the SEC, Federal Reserve, OCC and the FDIC (collectively, the “Agencies”)) released a 499 page second risk retention proposal (the “Second Proposal”). The Second Proposal covers risk retention for securitizers of all asset-backed securities, but also contains changes aimed directly at CLOs. For CLOs, the rules include both familiar provisions found in the first risk retention proposal (introduced in 2011) and new proposals, some of which are directed at alleviating the substantial burdens the Agencies themselves recognize the Second Proposal imposes on CLOs. Some of the proposals include new combinations of previously proposed forms of retention, new measurement metrics and holder eligibility criteria, hints at how grandfathering will be treated, a projected cash flow test for first-loss holders and an (likely ineffective) open market CLO option. The provisions outlined below do not reflect all changes found in the Second Proposal, but instead are meant to highlight some of the developments CLO participants may find important.Continue Reading Risk Retention Reproposal’s Impact on CLOs: Loan Arrangers Get Invited to the Party that No One Wants to Attend