2017

John Cleese, one of the great classic philosophers of the mid-twentieth century, made that inauspicious (from the perspective of the Shop Keeper) observation, “This parrot is dead!”  To which Michael Palin responded that it was merely resting.  (It’s better in drag and with the East Ender accent, but you get the idea.)

The Parrot skit [I wish I could link you to YouTube here, it is really very funny, but the damn lawyers here won’t let me.] came to mind recently as I attempted to negotiate yet another Third Party Purchaser (TPP) Agreement in risk retention land.  As everyone knows and is heartily sick of hearing, all securitization transactions now require the sponsor, or in commercial real estate deals, a third party purchaser, to hold risk retention securities in accordance with the breathtakingly vacuous Risk Retention Rule.  At Dechert, we did one of the pre-effective date pretend risk retention deals and, our TPP agreement was a weighty six pages long.  Since the Rule became real, TPP agreements have metastasized into much longer, more complex documents raising numerous dauntingly trying questions.

I have begun to wonder whether the risk retention TPP agreement is already near its death bed just some brief months following its birth.Continue Reading Monty Python Dead Parrot? Risk Retention and the Third Party Purchaser

Well, we’ve had the big reveal and the administration’s new tax plan is out.  This plan, announced with a great deal of fanfare, feels more like a campaign promise than an actual executable plan.  At two hundred forty-six words from end to end (four different typesets, three different fonts, three colors, weird spacing and a sad little dash at the top), anyone who was hoping for clarity and a plan to go to the bank on, is either disappointed… or perhaps relieved.
Continue Reading Have Yourself a Very Trumpy Tax Plan

The Auditing Standards Board (the “ASB”) of the American Institute of Certified Public Accountants recently released new standards as part of the “Attestation Clarity Project” with the goal of redrafting all its standards “in clarity format” (what format were they in before?  And, while we’re at it, can we try to use English here?  Clarity format?).  This Project will require compliance by bankers and issuers with very specific disclosure obligations (reps?) before the auditors will issue an Agreed Upon Procedures Letter (AUPs) for securitizations.  Some of this formalized existing practice, but the changes go further and are far more prescriptive.  A “new letter of representation” from the party who hires the auditors (the “Engaging Party”) is required as well as similar letters from the parties providing the data that the auditors are reviewing (each, a “Responsible Party”).  These new rules will become effective on May 1, 2017.  Any AUP that is issued after May 1 will be subject to the new rules.
Continue Reading New Accounting Rules Regarding AUPs Taking Effect May 1, 2017:  More Fun for a Battered Industry

Since my earliest days in the CRE capital markets biz, there has always been a drumbeat of grumbling from the borrower community about the annoying complexity, expense and delay of having one’s loan serviced in a capital markets transaction.  It’s been going on forever.  Like noise, like listening to Brits complaining about their weather; it’s ubiquitous, apparently personally gratifying, but largely inconsequential for outcomes.  The business goes on.  Data indicates that as many as 60% of all new CMBS loans come from refinancing non-CMBS loans, so it’s  not like a structured finance ghetto here.  The sell side takes comfort from the old saw that no sensible borrower would go to the CMBS window except as a last resort… like, three basis points or five bucks in extra proceeds.  Ok, that’s a tad too harsh and dismissive.  But going to the capital markets window for lower rates, more proceeds or less recourse is entirely rational.  On the other hand, the narrative about the pain through servicing in the capital markets is also real.
Continue Reading The Dilemma of the Really Annoyed Borrower

CREFC has surveyed some of its attendees—all major participants in the commercial real estate finance industry—at the 2017 CRE Finance Council January Conference in Miami.  CREFC’s 2017 market outlook survey confirmed what we observed at the conference this year, that for the most part survey respondents were cautiously optimistic in the face of the Trump Administration, Risk Retention and movement near the peak of the real estate cycle.  We decided to dig a little deeper to see how this year’s survey responses differed from last year’s. Armed with the benefit of a little hindsight, let’s consider the year we had, the year we expected, and the year we’ve just begun.
Continue Reading Reading the Financial Tea Leaves: CREFC Market Outlook Survey 2017

SFIG Vegas 2017, which took place last week at Aria Resort & Casino, was the largest capital markets conference in the world, according to the Structured Finance Industry Group. With over 6,300 registered attendees, and I suspect thousands more who came to Vegas to attend meetings without registering for the conference, it’s hard to imagine…

Since 2015, we here at Crunched Credit have tracked, followed and discussed the developments (or lack thereof) concerning the Immigration Investor Program, more commonly known as the “EB-5 Visa Program.” Throughout the past year, we’ve witnessed the approval of several extensions of the EB-5 Visa Program and in each instance, no substantive changes were included—these extensions were solely put in place in order to prevent the expiration of one of the most successful investment programs.
Continue Reading New Year! New Administration! Same EB-5 Dilemma!

What if Dodd-Frank and Basel III were to largely go away? Eliminating Dodd-Frank has been a hobbyhorse of Representative Hensarling, the chair of the House Services Committee, for several years and has figured prominently in President Trump’s campaign talking points. But the conventional wisdom has been that any sort of transformational uprooting of the Dodd-Frank and Basel III thicket was unlikely.

That’s what I thought, too. In fact, I have bloviated to that point in the press and on podiums many times. From the moment when everyone’s thinking was refocused that November 9th morning, I had thought that while major disruptions of many things were in the cards, Dodd-Frank and the Basel III architecture really weren’t on the menu. Now I’m starting to wonder. Sure, I still think major retrenchment is not going to happen, but my conviction that it’s impossible is what now gives me pause. Let’s face it, while rarely in doubt, I’m wrong a lot.

So just in case I am wrong, yet again, and some version of repeal or replace happens for Dodd-Frank and Basel III is rejected or slow-walked to death, what might that mean? It’s time to start planning for alternative facts.
Continue Reading Alternative Facts? A World Without Dodd-Frank and Basel III

The doctrine of substantive consolidation (generally- the power of a bankruptcy court to consolidate the assets and liabilities of affiliated entities in bankruptcy) is a recognized remedy exercised by bankruptcy courts – one that strikes fear into the hearts of many lenders. Justifiably so. The doctrine can be employed to order the substantive consolidation of related-debtor entities in bankruptcy and it can also be employed to substantively consolidate the assets of a debtor in bankruptcy with those of a related entity that is not a debtor in bankruptcy. Picture this: A parent entity files for bankruptcy and all the goodies are in a series of subsidiaries and the companies have never respected corporate niceties. The bankruptcy court presiding over the bankruptcy of the debtor-parent entity orders that the non-bankrupt SPE borrower will be dragged into bankruptcy and its assets used to satisfy the creditors of both the SPE borrower and the parent. Ta da.
Continue Reading Substantive Consolidation: It’s Alive and Well (or Maybe Just Alive)