Securitization and Structured Finance

This Note reviews credit ratings, the operations of the nationally recognized statistical rating organizations (NRSROs) and the SEC's proposed and adopted rule amendments  for NRSROs (including those required by the adoption of the Dodd-Frank Act).  An NRSRO is a credit rating agency that has registered as such with the SEC.  On May 18, 2011, the SEC proposed rules under the Dodd-Frank Act intended to increase transparency in and improve the integrity of credit ratings, in particular the credit ratings of structured finance products such as asset-backed securities (ABS). The proposed rules would amend existing rules governing credit ratings and NRSROs to improve the accuracy of credit ratings applied to structured financial products and minimize the mismanagement of risk by financial institutions and investors. See Legal Update, SEC Proposes Rules on Credit Ratings by NRSROs and Creates New ABS Due Diligence Requirements. This Note will be updated to reflect these rules after they have been adopted in final form by the SEC.

In this practice note, Barnabas Reynolds, head of the Financial Institutions Advisory & Financial Regulatory Group at Shearman & Sterling LLP, provides an overview of the EU Regulation on credit rating agencies (Regulation 1060/2009) (CRA Regulation). The note reflects amendments to the CRA Regulation made by CRA II (Regulation 513/2011) which transferred responsibility for the registration and ongoing supervision of EU credit rating agencies to the European Securities and Markets Authority (ESMA). For information about the amendments to the CRA Regulation to be made by CRA III, see Practice note, CRA III.

An explanation of asset-based and asset-backed financing, two commonly confused financing terms, and the differences between them.

An overview of the US federal laws governing indentures for debt securities issued by domestic and foreign companies. This Note also outlines the eligibility requirements, duties and liabilities for trustees as set out in the Trust Indenture Act of 1939.  In addition, this Note discusses the obligations of the issuer, rights of the securityholders, supplemental indentures, exemptions for Canadian issuers and special considerations for automatic shelf registrations.

This Note provides a summary of important cases in the area of securitization and asset-backed securities (ABS), including the flip clause cases, Perpetual (Belmont Park/BNY) and Ballyrock, as well as securitization-SPE cases GGP and In re Zais, and others.

An overview and detailed discussion of the parties to and documentation of a securitization transaction in which the securitized assets are originated in the US.

This Article discusses the substantial regulatory and related business challenges in the post-Dodd-Frank Act environment faced by banks that offer residential mortgages.  It analyzes the various proposed mortgage loan standards for purposes of: the qualified mortgage exception to the ability-to-pay requirement; the qualified residential mortgage exemption from the risk retention requirement; and the the treatment of mortgage loans under new US capital requirements that would implement Basel III in the US.  

An Article analyzing the structure, mission and implications of the newly formed Residential Mortgage-Backed Securities (RMBS) Working Group.

This resource summarizes the regulatory, legal and market developments in the area of securitization and ABS for 2011. The Note covers important securitization cases such as In re Zais, Innkeepers, General Growth Properties (GGP), First Millennium, Lehman v. BNY (Perpetual) and Ballyrock. The Note includes details of recent market activity in the CMBS and CLO markets, among others. The Note also examines proposed Dodd-Frank ABS risk retention (skin in the game), as well as relevant European ABS risk retention rules, the SEC's revised ABS shelf eligibility proposal (Reg AB II), the FDIC's bank securitization safe harbor rules and more. Note that as of November 30, 2011, this resource is no longer maintained. For more up-to-date information on many of the issues discussed in this Article, see Practice Note, Current Developments in Securitization: Overview.

Eric Berman of Practical Law Company sat down with Anna H. Glick, Stuart N. Goldstein and Patrick T. Quinn of Cadwalader, Wickersham & Taft LLP, to discuss their views on developments in the securitization market.

A summary of the terms and conditions of the Term Asset-Backed Securities Loan Facility (TALF) Program.

This Article is part of a series on the causes and impact of the financial crisis and gives an overview of the causes and effects of the financial crisis.

This Article considers: the types of transactions for which British Virgin Islands SPVs are used, the reasons for using British Virgin Islands SPVs, as well as details regarding organization, ongoing corporate and regulatory requirements, tax considerations and methods of dissolution. This Article forms part of a series that also covers the Cayman Islands, Ireland and Channel Islands (Jersey).

This article considers: the types of transactions for which Irish SPVs are used; the reasons for using Irish SPVs; the entities most commonly used for SPVs; listing on the Irish Stock Exchange; and the key features of limited liability companies (the most popular form of Irish SPV) including incorporation, ongoing corporate and regulatory requirements, tax considerations, methods of dissolution and insolvency proceedings.This article forms part of a series, covering Cayman Islands, Ireland, British Virgin Islands and Jersey.

Banking industry groups continue to warn of the potentially catastrophic effects on the ABS and credit markets of proposed regulations targeting securitization. Yet ABS issuance continues to surge and long-dormant asset classes re-emerge. Is the concern warranted?

Recently, US regulators issued numerous no-action letters and other limited or temporary relief relating to Dodd-Frank Act swaps rules. This update organizes and categorizes these releases to help practitioners make sense of all the activity.

The US District Court for the Southern District of New York issued an opinion and order in Bank of New York Mellon Trust Company, National Association v. Solstice ABS CBO II, Ltd., et al. determining the proper early termination payment under a swap entered into in connection with a collateralized debt obligation (CDO) transaction.

On December 7, 2012, the CFTC issued an interpretation and no-action letter expanding the exemption for securitization vehicles from the CEA's "commodity pool" definition. The letter also extends until March 31, 2013 the deadline for registration as commodity pool operators (CPOs) for operators of nonconforming securitization vehicles.

The SEC staff published a report to Congress on credit rating standardization, as required under the Dodd-Frank Act.

The Federal Reserve Board issued a final rule implementing changes to its market risk capital rules, requiring banking organizations with significant trading activities to adjust their capital requirements to better account for the market risks of those activities.

On May 18, 2012, the SEC staff issued a no-action letter allowing the Royal Bank of Canada (RBC) to register the offer and sale of covered bonds in the US.

14 law firms have released a report detailing their consensus on the immediate effect of the Jumpstart Our Business Startups Act of 2012 on SEC rules governing general solicitation and advertising in certain private placements.

The US sales of new collateralized loan obligations (CLOs) are set to make February the strongest month for CLOs since the financial crisis.

The SEC issued a no-action letter that permits Ginnie Mae MBS issuers to omit disclosures required by Rule 15Ga-1 of the Exchange Act, provided they comply with certain conforming requirements.

The SEC adopted a final rule amending the net worth standard in the definition of accredited investor under the Securities Act to conform the definition to the requirements of the Dodd-Frank Act.

On October 11, 2011, the federal banking agencies issued for public comments proposed rules implementing the Volcker Rule under Section 619 of the Dodd-Frank Act.

The European Banking Authority has published questions and answers on issues arising from the December 2010 guidelines on Article 122a of the Banking Consolidation Directive (2006/48/EC), which forms part of the Capital Requirements Directive (CRD).

In In re: Zais Investment Grade Limited VII, the US Bankruptcy Court for the District of New Jersey held that a Cayman Islands-based issuer in a collateralized debt obligation (CDO) transaction can be a debtor in bankruptcy under section 109 of the Bankruptcy Code.

The SEC has suspended reporting requirements under Section 15(d) of the Exchange Act for certain issuers of registered asset-backed securities (ABS) that are no longer outstanding or are held only by affiliates of the issuer.

An update on the LSTA's comment letter to federal regulators regarding the application of Dodd-Frank ABS credit risk retention requirements to collateralized loan obligations (CLOs).

An update on the UK Supreme Court confirming the enforceability of flip clauses under UK law in the Belmont Park (Perpetual) decision.

An update on the SEC's re-proposed rules outlining the requirements for shelf registration eligibility for asset-backed securities (ABS), replacing its proposed April 2010 revisions to Regulation AB (Reg AB).

An update on the controversy surrounding the timetable for Dodd-Frank implementation and the extension by federal regulators of the public comment period for proposed rules on securitization credit risk retention to August 1, 2011. This is the latest in a series of Dodd-Frank rulemaking delays that have come primarily in the area of OTC derivatives.

An update on the SEC's proposed rules to increase transparency in and improve the integrity of credit ratings while implementing certain provisions of the Dodd-Frank Act.

An update on the SEC proposal under the Dodd-Frank Act that would amend certain Exchange Act rules and forms to remove references to credit ratings.

An update on renewed investor interest in mortgage-backed securities (MBS) backed by less-than-prime assets, including both subprime mortgages and so-called "scratch and dent" mortgages approved with incomplete records or made to borrowers who have missed payments.

An update on the United States Covered Bond Act of 2011, a bill introduced in the House of Representatives to provide a framework and regulatory oversight for US covered bonds.

An update on the ruling that the Mortgage Electronic Registration Systems (MERS) has no right to transfer mortgages, handed down by the Bankruptcy Court for the Easterm District of New York. MERS was developed to expedite the legal recordkeeping of mortgages to aid in the sales of mortgages through securitizations. This adverse ruling could have a serious impact on MERS and lenders that acquire mortgages by assignment through MERS and their ability to foreclose on the underlying real property.

An update on the SEC's proposed rule under the Dodd-Frank Act amending the net worth standard in the definition of accredited investor.

An update on new S&P criteria for assessing swap counterparty and other support in structured finance transactions.

An update on a proposed SEC rule that would suspend the duty of asset-backed securities (ABS) issuers to file ongoing disclosure reports under Section 15(d) of the Exchange Act in certain limited circumstances and a related no-action letter clarifying the reporting requirements for issuers of pre-Dodd-Frank ABS.

The Committee of European Banking Supervisors has published guidelines to Article 122a of the Capital Requirements Directive (2006/48/EC and 2006/49/EC) (CRD), reflecting amendments made by CRD 2 (2009/111/EC).

An update on the SEC's request for comments regarding its credit rating standardization study under the Dodd-Frank Act.

An update on the SEC's 18-month extension of an accommodation in Regulation S-T that allows companies engaged in asset-backed security (ABS) offerings to make required disclosures of static pool information on the internet rather than through EDGAR.

An update on an indefinite extension by the SEC of the safe-harbor period during which it will permit the omission of ratings disclosures from a prospectus that is part of a registration statement relating to a registered offering of asset-backed securities.

An update on the new effective date for ABS TRACE reporting: May 16, 2011.

An update on a proposed rule by the SEC under the Dodd-Frank Act relating to issuer and third-party review of assets backing asset-backed securities transactions, and related disclosure requirements.

An update on the SEC's proposed new repurchase and rating agency disclosure rules under the Dodd-Frank Act for asset-backed securities.

An update on the SEC's release of a timetable for implementing the Dodd-Frank Act.

An update on the best practices for agency mortgage-backed securities (MBS) recently issued by the Treasury Market Practices Group (TMPG).

An update on the proposal by two Fed economists to create an insurance system for asset-backed securities.

An update on the FDIC's sale of $400 million of securities in mortgage-backed securities pilot program.

An update on the unintended consequences of financial regulatory reform for the issuance of asset-backed securities (ABS).

An update on the Delaware Court of Chancery's decision in Concord Real Estate CDO 2006-1, et al. v. Bank of America in which the Court permitted collaterialized debt obligation sponsors to voluntarily cancel certain notes to circumvent a par coverage test because the terms of the indenture did not expressly prohibit the cancellation.

An update on the new SEC rules designed to encourage unsolicited ratings of certain asset-backed securities (ABS).

An update on the FDIC's approval of a notice of proposed rulemaking to amend the safe harbor protection for assets transferred by an insured depository institution in connection with a securitization or participation (known as the "Securitization Rule").

An update on the SEC's proposed modification to Regulation AB, which governs disclosure relating to offerings of asset-backed securities.

An update on the reintroduction of the Covered Bond Act in the House.

An update on an extension by the FDIC of safe harbor protections for securitizations.

An update on the ruling in the Lehman vs. BNY case (known as Perpetual), holding that a market-standard provision in a securitization deal known as a flip clause, which is designed to subordinate swap payments when the swap provider defaults under the swap, is not enforceable if the default is triggered by a bankruptcy filing of the swap provider.

An update on the release by the American Securitization Forum (ASF) of the final version of model representations and warranties for residential mortgage-backed securities (RMBSs) developed to promote issuer due diligence and enhance transparency in the RMBS market.

An update on the FDIC finalizing the regulatory capital rule for statements of financial accounting standards.

An update on the House passage of the Wall Street Reform and Consumer Protection Act.

An update on the first new issue of commercial mortgage-backed securities since the start of the credit crunch.

An update on the SEC's proposed rule to extend for a further year an accomodation in Regulation S-T which allows companies engaged in asset-backed security (ABS) offerings to make required disclosures of static pool information on the internet rather than through EDGAR.

An update on FINRA's proposed rule change to expand Trade Reporting and Compliance Engine (TRACE) reporting requirements to transactions in asset-backed, mortgage-backed and other similar securities.

An update on a recent American Securitization Forum (ASF) seminar, where speakers discussed the negative impact and collateral consequences that the new accounting rules will have on the securitization and credit markets.

An update on a Wall Street Journal article on state insurance regulators considering whether to reduce the role of credit rating agencies in measuring the health of insurer's portfolios of mortgage-backed securities (MBSs).

An update on a fraud case against Moody's, S&P, and Morgan Stanley in the Southern District of New York for losses from the sale of inaccurately rated securities and a recent refusal to dismiss the case based on a First Amendment argument put forth by the rating agencies.

An update on a recent trend to resecuritize commercial mortgage-backed securities (CMBSs) as a method to hedge against losses stemming from downgrades.

An update on a report that discusses worsening residential-mortgage delinquency cure rates.

An update on the FASB's plan to expand the use of mark-to-market accounting.

An update on a class action suit against top rating agencies accused of accepting misleading information when rating mortgage-backed securities.

An update on the FRBNY's publication of revised documents related to the Term Asset-Backed Securities Loan Facility (TALF).

An update on a partnership between S&P's Fixed Income Risk Management Services and the American Securitization Forum (ASF) to create a loan identification numbering system and loan data repository for mortgage- and asset-backed securities.

An update on the ratings effect of a recent Fitch Ratings downgrade of American International Group (AIG).

An update on Standard & Poor's (S&P) commitment to update its ratings process in the wake of the global financial crisis.

An update on the American Securitization Forum (ASF) releasing model representations and warranties and disclosure and reporting packages for use in residential mortgage backed securities (RMBS).

An update on an article in The Financial Times on the reported new trend of "smart securitizations".

An update on the sale by Morgan Stanley of a $130 million re-securitized collateralized debt obligation (CDO) backed by leveraged loans.

An update on the joint statement released by the Treasury Department, the Federal Reserve Board of Governors and the FDIC listing the firms selected to participate as fund managers in the Private-Public Investment Program (PPIP).

An update on the New York State Banking Department's adoption of regulations governing residential mortgage loan servicers.

An update on the requirement that all clearing participants of the Mortgage-Backed Securities (MBS) Division of the Fixed Income Clearing Corporation (FICC) submit valid Federal Reserve Bank book-entry settlement instructions for MBS.

An update on a letter from the Office of Thrift Supervision to financial institution CEOs on the risk weighting of downgraded securities.

An update on various changes to rating agency criteria, assumptions and ratings methodologies announced during the week ending June 26, 2009.

An update on critics of President Obama's financial regulatory overhaul proposal who say it misses the opportunity to address credit rating agency shortcomings.

An update on Standard & Poor's (S&P's) loss projection assumptions for US prime jumbo mortgage-backed securities (RMBS) issued in 2005-2007.

An update on the Federal Reserve Bank of New York's (FRBNY's) publication of revised Term Asset-Backed Securities Loan Facility (TALF) FAQs.

An update on the Federal Reserve Bank of New York's (FRBNY's) publication of revised Term Asset-Backed Securities Loan Facility (TALF) documents.

An update on an announcement by Fitch Ratings about expected ratings actions for recent vintage US commercial mortgage-backed securities (CMBS) transactions.

An update on Standard & Poor's (S&P) announcement of its new standards for evaluating operational risk in AAA- and AA-rated structured finance transactions.

An update on the Federal Reserve Board expanding the eligible collateral for the TALF (Term Asset-Backed Securities Loan Facility) to existing commercial mortgage backed securities (CMBSs).

An update on changes to rating agency criteria announced the week of May 22, 2009.

An update on some of the changes to rating agency criteria announced the week of May 8 - May 14, 2009.

An update on a report by Reis, Inc., detailing the rise of defaults and delinquencies in commercial mortgage-backed securities (CMBS) in the first quarter of 2009.

An udpate on escalated activity by Fitch towards synthetic corporate collateralized debt obligations.

An update on the Federal Reserve Board's announcement of changes to the Term Asset-Backed Securities Loan Facility (TALF), including adding commercial mortgage-backed securities (CMBSs) as eligible collateral and offering loans with five-year maturities.

An update on an article discussing the issues facing CLO transactions in the current financial climate.

An update on the Loan Syndications and Trading Association (LSTA) commenting on Moody's proposal to change its ratings criteria for market value CDOs, which may cause downgrading of many Aaa rated notes.

An update on litigation brought by investors against credit rating agencies.

An update on changes to rating agency criteria including a new S&P white paper examining credit rating firms business models.

An update on the issuance of revised documents and forms for the Term Asset-Backed Securities Loan Facility program.

An update on the introduction in the House Financial Services Committee of the bill for the National Mortgage Reform and Anti-Predatory Lending Act of 2009.

An update on Fitch Ratings' loss estimates for certain US prime residential mortgage-backed securities.

An update on the Mortgage Bankers Association's estimate for mortgage originations for 2009.

An update on S&P's revisions of its RMBS NIMS methodology and assumptions, and its evaluation of insurer's TALF investments and the equity content of CAP convertible preferred stock.

An update on the resistance from investment firms to the foreign worker rules in TALF.

An update on the formation of a task force to detect and investigate any fraud affecting TALF.

An update on S&P's increased monitoring of resources used by CLO managers to monitor their transaction portfolios and perform other related key functions.

An update on the Term Asset-Backed Securities Loan Facility Program.

An update on a Moody's report on a possible $680 billion downgrade of residential mortgage-backed securities (RMBS).

An update on the bulletin describing important changes to DTC's Representations for Rule 144A Securities Rider.

An update on the required certification and form of Master Loan and Security Areement for TALF transactions published by the Federal Reserve Bank of New York.

An update on a Fitch Ratings report on proposed amendments to the Basel II framework.

An update on the Federal Reserve's announcement that they are ready to expand the Term Asset-Backed Securities Loan Facility (TALF).

An update on the Federal Reserve Board's additional terms and conditions for the Term Asset-Backed Securities Loan Facility.

An update on the Federal Reserve's Asset-Backed Commercial Paper Money Market Fund Liquidity Facility.

An update on Standard & Poor's proposed changes for the ratings assumptions and methodologies used with market value collateralized loan obligations.

An update on Fitch Ratings's updated criteria for rating collateralized debt obligations backed by structured finance assets.

A Q&A guide to structured finance and securitisation law in South Korea. This Q&A provides an overview of, among others, the markets and legal regimes, issues relating to the SPV and the securities issued, transferring the receivables, dealing with security and risk, cash flow, ratings, tax issues, variations to the securitisation structure and reform proposals. To compare answers across multiple jurisdictions, visit the Structured lending and securitisation Country Q&A tool. This Q&A is part of the PLC multi-jurisdictional guide to structured finance and securitisation. For a full list of contents visit www.practicallaw.com/securitisation-mjg.

A Q&A guide to structured finance and securitisation law in Hong Kong. This Q&A provides an overview of, among others, the markets and legal regimes, issues relating to the SPV and the securities issued, transferring the receivables, dealing with security and risk, cash flow, ratings, tax issues, variations to the securitisation structure and reform proposals. To compare answers across multiple jurisdictions, visit the Structured lending and securitisation Country Q&A tool. This Q&A is part of the PLC multi-jurisdictional guide to structured finance and securitisation. For a full list of contents visit www.practicallaw.com/securitisation-mjg.

A Q&A guide to structured finance and securitisation law in Argentina. This Q&A provides an overview of, among others, the markets and legal regimes, issues relating to the SPV and the securities issued, transferring the receivables, dealing with security and risk, cash flow, ratings, tax issues, variations to the securitisation structure and reform proposals. To compare answers across multiple jurisdictions, visit the Structured Finance and Securitisation Country Q&A tool. This Q&A is part of the PLC multi-jurisdictional guide to structured finance and securitisation. For a full list of contents visit www.practicallaw.com/securitisation-mjg.

An update on the settlement reached by Lehman Brothers Holdings Inc. with BNY Corporate Trustee Services Ltd. and Perpetual Trustee Co. Ltd. in the "flip-clause" cases.