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Recently, Dechert Partner Sarah Milam partook in an auto ABS panel discussion at ABS East in Miami, Florida.  Sarah and four distinguished panelists discussed the state of the ABS auto loan market, issuance, yields, collateral performance, ESG trends, and deal structures.  Sarah sat down with Associate Griffin Hamilton to recap the conference.
Continue Reading Auto ABS: Uncertainty and Excitement Ahead

The US economy is about to pay the butcher’s bill for a massive disruption of worldwide financial markets resulting from the elimination of the London Interbank Offered Rate, or LIBOR.  And, we are doing this on purpose.  It seems the denizens of the heights of our international financial fabric felt they had to do this in light of the discovery that a handful of bankers had unlawfully colluded to cause LIBOR to be mispriced for their personal advantage.  As Captain Renault said, “I’m shocked, shocked!”  This was so bad that we had to blow up the LIBOR index upon which trillions of dollars of financial assets are based?  While bankers behaving badly is a problem, why are we punishing markets because our banking regulatory cadres failed to prevent bad behavior?  At best, this is a monument to irrational rectitude.
Continue Reading Killing LIBOR: A Victory for Irrational Rectitude

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

Your correspondent is fresh from the front-lines of the risk retention wars where great armies of lawyers, bankers and advisers are fixedly staring at each other, staring out of the redoubts of their respective defensive crouches in a complex, multidimensional chess game.  All are fervently hoping against hope that something or someone does something to create clarity and allow our business to pivot around this new set of rules so it can continue to thrive.  I think all of us in the finance world are justifiably proud of the fact that if we are given a set of rules, we’ll figure out how to conduct business.  But the uncertainty here is freezing everyone in place, a giant front court pick that we can’t seem to get around.  But one thing is certain and that is that Christmas Eve is coming and with it this Rule will become effective.  After having obsessed about the Risk Retention Rule for years now, we are broadly no closer to clarity about how one should play in the soon to be upon us risk retention world.
Continue Reading A Report From the Risk Retention Front-Lines

And now to return to our commentary a few weeks back about the stultifying impact of ill-thought through rules and regulations (at best) (Brexit has intervened).  This is our Regulatory State which broadly attempted to pick winners and losers and modify market behavior, to get an engineered outcome by using the blunderbuss of proscriptive rules and regulation.
Continue Reading A Trip Through the Labyrinth – The Regulatory Man in Full

The slow start to 2016 did not dampen the enthusiasm at CREFC’s Annual Conference, held last week in New York City.  The conference saw record attendance, with standing-room-only crowds at virtually every panel.  As with the Industry Leaders Conference in January, the hot topics on people’s minds were risk retention (and the rest of the regulatory headwinds), liquidity and the competitiveness of the CMBS market.

The conference made very clear that we are at an inflection point in the current cycle.  The general mood of the conference, in our view, was the confluence of nervousness and cautious optimism.  The gloominess of the first quarter, and fears over the “sky is falling,” has yielded to mild bouts of enthusiasm (at least if the parties were any indication).  The capital markets have settled down over the past few months, spreads have tightened, and borrowers have begun to trickle back into the CMBS market.

Clearly our industry faces headwinds, and nobody is betting on a record second half, but we also did not hear anyone ringing the death knell for our business.  We left the conference with more questions than answers.  Here are some:Continue Reading CREFC Annual Conference 2016: Headwinds or Head First Into the Wall?

We thought it would be useful to give a quick, interim update on the slow-motion train wreck that is our industry’s response to the upcoming effectiveness of the Risk Retention Rule.  For those of you who have been blessedly snoozing under a rock these past couple of years, the Risk Retention Rule becomes effective on Christmas Eve and applies to all transactions closed (priced?) after that date.  The Rule, to generalize a bit, requires the sponsor of a securitization to retain a 5% vertical or horizontal strip with the additional possibility of laying off some or all of that risk onto a qualified B piece buyer or a mortgage loan originator.  For more detail, please see our OnPoints, our risk retention briefing white papers and many, many back issues of this CrunchedCredit.

Here’s the headline in Muddville in May of 2017:

We As An Industry Are In Trouble. 

We as an industry don’t have a scalable solution to the problem.  We as an industry do not know what this will cost, who will pay for it, and to what extent this is an existential risk to CRE capital formation as it has been conducted for the past twenty-five years.Continue Reading Risk Retention: It’s the Fourth Quarter and the Home Team is Getting Glum

Dechert’s securitization team is looking forward to the American Securitization Forum 2013 (“ASF 2013”) conference starting this Sunday, as it is expected to be once again the largest capital markets conference in the world. ASF 2013 is expecting over 4,500 participants who will all convene at the Aria Hotel and Convention Center in fabulous Las Vegas.Continue Reading ASF 2013 (“Viva Las Vegas”)

The Consumer Financial Protection Bureau (the “CFPB”) is currently charged with defining a “Qualified Mortgage” (a “QM”). The federal banking agencies, the SEC, the FHFA and the Department of HUD are jointly charged with defining a “Qualified Residential Mortgage” (a “QRM”), and the QRM definition cannot be any broader than the QM definition. A narrowly…

On August 17, the final rules from the SEC came out (“Rules”) regarding an ABS issuer’s duty to file Exchange Act reports — specifically, if and when an issuer can suspend reporting.

The Rules specify that, effective September 22, the duty to file periodic reports under the Exchange Act will be suspended if all outstanding ABS are held by affiliates of the depositor or if no ABS are outstanding.

Before the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), the obligation to file certain Exchange Act reports was automatically suspended for any fiscal year after the year in which the issuer’s registration statement became effective or, for offerings of ABS shelf takedowns, the fiscal year after the takedown. Prior to the Dodd-Frank Act, most ABS issuers could and did take advantage of the suspension. Section 942(a) of the Dodd-Frank Act amended Section 15(d) of the Exchange Act by eliminating the automatic suspension of the duty of ABS issuers to file Exchange Act reports for transactions in which the ABS are held by fewer than 300 persons and authorized the SEC to issue rules providing for the suspension or termination of an ABS issuer’s reporting obligations.Continue Reading SEC Clarifies Exchange Act Reporting for ABS Issuers