Securitization

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I wrote about the disconnect between our CRE CLO technology and the task at hand (finding acceptable lever in an expanding leverage desert) in my last commentary.  While the CRE CLO remains the best form of match-term, non-marked-to-market finance for portfolio lenders and represents the best alignment of interests between sponsor and investor across the…

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 closing deadline is quickly approaching!  Which of the following two processes would you choose?  Would you:

(a) create a pdf of signature pages and request that parties provide a digital signature and return via email, or

(b) print out multiple sets of paper copies of each signature page for each transaction document in triplicate, then… ship each signature page packet to each signatory for the transaction (sending in tandem, an email with the overnight delivery tracking numbers) with a pre-addressed and prepaid return envelope and instructions to sign and return on a very tight timeline with no room for error, then…wait by the mailroom for those signature pages to come back.Continue Reading Original[s] Sin

One of the pleasures of life is re-encountering old friends, catching up on what’s happened while your lives have gone their separate ways, reminiscing about the good old days and reconnecting.  It comes back so fast, it’s like you never were apart.

Me and the Liquidating Trust had just such an experience the other day.Continue Reading A Walk Down Memory Lane with the Liquidating Trust

A new OnPoint from Dechert’s Employee Benefits and Executive Compensation team discusses a recent ruling from a federal court in the Southern District of New York. There, a pension plan that had acquired notes issued by a vehicle invested in a pool of sub-prime residential mortgage-backed securities is arguing that the vehicle’s assets are “plan…

We have been writing off and on about the restoration to good graces of the commercial real estate CLO since the early days of this current recovery, and it’s important to keep the conversation going.  Hey, if Pete Rose can get into the Hall of Fame (and as MLB is embracing gambling, that cannot but happen, right?), the full restoration of the reputation of the CRE CLO cannot be far behind.

First, let’s just stop and get some definitional clarity here for those of you who actually have a life.  Fundamentally, the CRE CLO is a device that provides match-term leverage for a portfolio lender, though the technology can be used for other purposes.  Loans are pooled, investment-grade securities are sold to investors, and the loans are repaid from debt service payments.  Customarily, the sponsor retains all of the equity and junior debt, creating structural leverage to enhance returns on the dollars invested in the structure.

It’s really a warehouse funded by the capital markets. As such, it provides for an excellent alignment of interests between investors and the sponsor, who holds the bottom of the capital stack.  The sponsor is in it for the long haul, managing financial assets for its benefit and the benefit of the investors alike.
Continue Reading The CRE CLO Is Back…and That’s Good

We published the below commentary, In Defense of Securitization, last week and we are republishing it today as, let’s face it, we’re all getting very French, and many of us took most of last week off.  Enjoy, if that’s the right word.

Returning to the theme of my most recent commentary entitled God Hates Securitization, I want to elaborate on the point I made there (yes, if you stuck with me all the way through to the end, there was a point):  We need to fight the narrative that banking, finance and securitization are evil.  I am afraid that if we don’t do something here soon, we’ll wake up one morning (probably after the next cyclical downturn is underway) and find pitchfork-wielding villagers outside the gates thinking they have found Dr. Frankenstein’s monster.  Populist anger, whipped up by our critics demonizing the financial sector, unfettered from the necessity to defend these positions in the marketplace of ideas and the court of public opinion, is powerful.  That, coupled with our recent embrace of the weaponization of policy disputes enforced by both civil and criminal legal proceeding, should frighten all of us who make our living in the financial sector.  And, to be clear, it should frighten everyone who understands the importance of an efficient and liquid capital market for the continued success of the US economy.
Continue Reading Repost: In Defense of Securitization – Unto the Breach or Close the Wall Up with Our Dead (with Apologies to Mr. Shakespeare)

Returning to the theme of my most recent commentary entitled God Hates Securitization, I want to elaborate on the point I made there (yes, if you stuck with me all the way through to the end, there was a point):  We need to fight the narrative that banking, finance and securitization are evil.  I am afraid that if we don’t do something here soon, we’ll wake up one morning (probably after the next cyclical downturn is underway) and find pitchfork-wielding villagers outside the gates thinking they have found Dr. Frankenstein’s monster.  Populist anger, whipped up by our critics demonizing the financial sector, unfettered from the necessity to defend these positions in the marketplace of ideas and the court of public opinion, is powerful.  That, coupled with our recent embrace of the weaponization of policy disputes enforced by both civil and criminal legal proceeding, should frighten all of us who make our living in the financial sector.  And, to be clear, it should frighten everyone who understands the importance of an efficient and liquid capital market for the continued success of the US economy.
Continue Reading In Defense of Securitization – Unto the Breach or Close the Wall Up with Our Dead (with Apologies to Mr. Shakespeare)

Morningstar has published a proposed method for rating single-asset/single-borrower (SASB) transactions. The new approach is slated to replace the “U.S. CMBS Subordination Model” with respect to SASBs and other forms of CMBS securities with similar credit and diversity profiles, including large-loan transactions and rake certificates. Morningstar has issued a request for comments on the proposal. We plan to provide our thoughts, described below, before the April 20th deadline, and encourage you to do the same. But first, answers to what are sure to be your most burning questions:
Continue Reading Morningstar Requests Comments on Proposed Rating Methodology for SASB Deals

Will 2018 be the Year of Concentration across our market?  “The Urge to Merge” was the title of a January 2, 2007 Economist article.  It resonates today.  The cover photo was two camels copulating, which some of the Economist readers, surely a high-brow and sensitive bunch, apparently found offensive, as the picture is nowhere to be found on the internet.  They would not allow me to republish the pic.  A priggish fastidiousness that does not reflect well.

Seriously, 2018 could be the year of significant concentration across much of the CRE non-bank space, and perhaps some portions of the prudentially regulated bank space as well. 
Continue Reading The Urge to Merge