Effects of Rating Downgrades

If you thought the wrangling over special servicer replacements was over following Richard Snowden QC’s judgment in US Bank v Titan Europe 2007-1 (NHP) plc in April last year, think again.

Ever since Fitch issued their press release confirming that as a matter of policy it would not provide rating agency confirmations (RACs) in relation

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

As was common at the time of the inception of the transaction, Danske Bank A/S (Danske) had provided a liquidity facility (LF) on a commercial mortgage-backed securitisation issued by the issuer, Gemini (Eclipse 2006-3) plc (Gemini).  Due to the subsequent plethora of downgrades that have followed the financial crisis (from which the liquidity facility provider did not escape), a liquidity stand-by drawing of £64,000,000 was made by Gemini. The liquidity facility provider was entitled under the liquidity facility to recover any increased costs as a result of the application of Basel II (as implemented in Denmark) to the LF.  A subsequent withdrawal by Moody’s of the separate rating obtained in relation to the LF caused a rise in the increased costs due to Danske being required to set aside more capital for regulatory purposes.
Continue Reading The Liquidity Eclipse

Just a few blissful years ago, one would never think of originators getting wound up or sellers being liquidated. In the world of structured finance, the possibilities of that doomsday scenario were remote, unthinkable and above all, no one wanted to discuss its potential occurrence.

That changed with the Lehman collapse and with that, a domino effect ensued.

Of course, that’s not to say that the industry never thought of what would happen in that unlikely occurrence and the transaction documents do provide for some sort of crisis resolution. Despite the existence of clauses to deal with bankrupt originators, these would prove to be tedious and impractical at best and totally unworkable at worst.
Continue Reading Practical implications of insolvent originators

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