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Theano Manolopoulou

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It’s been a busy Christmas and New Year’s season for US regulators. After three years of work, the Federal Reserve Board announced in mid-December that five federal agencies have issued final rules to implement section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Volcker Rule”), which is intended to limit proprietary trading by banks. But their job was hardly done.

US regulators came back to work after the holiday to find that portions of the final version of the Volcker Rule have been challenged in a lawsuit over claims that requiring small banks to divest their holdings in certain collateralized debt obligations known as trust-preferred securities or TruPs C.D.O.s will cause 275 small banks about $600 million in losses and impact their ability to lend to consumers and businesses.

The American Bankers Association, an industry lobby that represents several community banks, objects to the portion of the rule that will force banks to sell TruPs C.D.O.s, and has filed a complaint before the U.S. Court of Appeals for the District of Columbia Circuit seeking a court order blocking the rule from taking effect before the end of the year (source: New York Times). The group claims that the regulators did not properly analyze the economic cost of this portion of the rule on small community banks and the impact on their capital levels.

Then, on 14 January 2014, the regulators released a final interim rule to permit banks to retain interests in TruPs C.D.O.s under the following conditions:Continue Reading New Year, New Troubles for US regulators: Volcker Rule challenged before federal courts

They say that the early bird catches the worm and it seems that courts in the US definitely agree. A recent decision by a court of appeals in Philadelphia could serve as a wakeup call for any noteholders or issuers and servicers that might have claims to bring in relation to, respectively, the disclosure of risks in offering materials or the valuation of underlying assets that they need to be diligent with regard to their filings. The facts of the case highlight why interested noteholders, issuers and servicers should scrutinise the relevant materials on which they have relied and investigate any claims in order to take relevant action in a timely manner.
Continue Reading The Operating Engineers Pension Trust Fund Lawsuit: The time is now (or has it already passed?)

Last week’s new Debussy DTC/Toys’R’Us CMBS transaction , which we were happily involved in, has sparked media attention as a sign of recovery of investors’ faith in the European securitisation markets. It also demonstrated investor demands to address some of the structural issues that had arisen in the original Vanwall securitisation as well as other legacy CMBS transactions.

This new CMBS incorporates many of the features based on a set of guidelines drawn up by banks and funds to govern new European CMBS transactions (although it should be noted these are separate from the guidelines drafted by Commercial Real Estate Finance Council’s CMBS 2.0).
Continue Reading Playing with New Toys: How investor guidelines are shaping new CMBS transactions

It’s been a year since I joined the structured finance team. I can’t believe it went by so fast. A year of learning and moving forward. Downgrades, liquidity drawings and agent replacements in the summer, noteholder meetings in autumn, covered bonds and refinancing of old CMBS deals in the new year. Inevitably, this one year mark makes me think how much I’ve changed, and how much I’ve learned in the process. It also makes me think how much the ABS markets and the types of investors in those markets have changed since the emergence of the subprime mortgage crisis and the credit crunch.
Continue Reading From Finance 101 to CMBS 2.0

On 28 January the competent authority for supervising securities in Greece, the Hellenic Capital Market Commission (HCMC), made use of its powers of intervention in exceptional circumstances and decided to introduce yet another emergency measure under Article 20 of Regulation No 236/2012, also known as the EU Short Selling Regulation. As defined in the Regulation, short selling consists in the sale of securities that the seller does not own, with the intention of buying back an identical security at a later point in time in order to be able to deliver the security.
Continue Reading Hellenic Capital Market Commission – New Emergency Prohibition under the EU Short Selling Regulation

The Basel Committee on Banking Supervision announced yesterday that it had finalised the rules for the Liquidity Coverage Ratio or LCR i.e. the main mechanic for regulating liquidity in the Basel III package of reforms.

The LCR requires that a bank hold a sufficient stock of “High Quality Liquid Assets” to meet its net cash outflows in a hypothetical stress scenario. The rules set out the parameters for the stress scenario, the calculation of the net cash outflow and the type of assets which can constitute High Quality Liquid Assets.

Lobbying has achieved a notable success as certain “residential mortgage-backed securities rated AA or higher” can now be included in a bank’s stock of high quality liquid assets (subject to a 25% haircut, which is lower than the haircut applied to some corporate debt securities and to the limitation that this component can form no more than 15% of the buffer as a whole).
Continue Reading RMBS can form part of the Basel III liquidity buffer. Some good news for the structured finance industry.

A new consultation paper  published earlier this week by the Basel Committee on Banking Supervision will inevitably cause uncertainty and is likely to affect investment decisions long before the new rules take effect.

The paper sets out the Committee’s proposal to revise the treatment of securitisation exposures and is largely inspired by the belief that highly-rated securitisations currently attract too little regulatory capital and low-rated senior securitisations are subject to regulatory capital charges which are too high. The proposals are relatively high level. The Committee has invited the submission of comments by 15 March  2013. Responses to the public consultation, together with the results of a quantitative impact study, will be considered as the Committee moves forward to suggest detailed amendments to the securitisation framework.
Continue Reading Basel Committee proposes changes to the Basel II securitisation framework – what does this mean for new issuance?

It’s been another one of those grey weeks. A swap counterparty in a securitisation is supposed to post collateral but there’s no CSA in place. Neither are there collateral accounts for that matter as the account bank agreement did not provide for any collateral accounts. Attempting to post would therefore only lead to a bigger mess. A bank holding several roles in a CMBS transaction was downgraded months ago, but parties still cannot decide which party will pay the Rating Agencies for the RAC. Or even which roles that RAC will cover. A bond issue has been dragging on for weeks now. You’ve been chasing people for comments to no avail. Is it ever going to close? And if all that wasn’t enough, a transaction you’ve been working on for months was supposed to close today but the signatories are unavailable. Angry emails are flying around…
Continue Reading Clouds and Silver Linings

The moment when the news blast comes in. You glance at the title. “New rating downgrades”. Dismay. No other way to describe it. It’s not shock really: You’ve been expecting this to happen, sooner or later. Instantly, several switches are starting to go down in your mind. You start counting: One, two, three … forty. Yes, forty. The number of transactions that may have been hit. Check the documents. Check the triggers. Check the correspondence records. Check the announcements on ISE. Check the deadlines. Some of these transactions only provide for a five business day window to take remedial action. Be mindful. Start contacting the liquidity facility providers, the trustees and servicers. Check if collateral arrangements have been put in place.
Continue Reading Thrown in at the Deep End