asset-backed securities

So called ‘sunshine backed bonds’ are one of the newest and most exciting asset classes to enter the asset-backed securities market since the financial crisis. The resurgence of the market has led to a number of esoteric ABS issuances in recent months but it was solar energy that seemed most ripe for applying securitisation techniques (which provide an especially powerful financing tool). Indeed, given how this financing technique revolutionised the mortgage finance market 30 years ago, it now seems poised to play a role in transforming the renewable energy markets across Europe.

The case for securitising solar

In essence, securitisation allows companies to access the capital markets and in so doing to bring down their cost of capital and improve liquidity. Pools of illiquid assets are sold to bankruptcy-remote vehicles which then issue bonds to investors which are backed by the pool of assets. The originator of the assets is able to turn illiquid assets into saleable securities and in so doing shift those assets, and the risk of ownership, off its balance sheet in return for new finance.
Continue Reading Sunshine backed bonds – time to look on the sunny side?

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?)

For some time now I have struggled to give an abbreviated version of what I do.  When “I’m a lawyer” elicits the question, “What sort of law do you practice?” I find that there is no short, layman’s-terms explanation of structured finance that doesn’t put people to sleep.  Recently I have resorted to saying, “I do the sort of stuff that caused the credit crunch,” but some people, on hearing that, start backing away in horror as though I myself am as toxic as the assets in some of the transactions.  At that point, I usually mumble something about trying to be funny and move on to another subject.

All that changed last month.  As Fabrice Tourre went on trial for selling risky investments in complex financial products, the judge urged the banning of certain terms from the courtroom, including “CDO,” “asset-backed,” “securitisation,” “short and long investors,” and “credit default swap.”  “Have a heart,” she urged, “Keep the mumbo-jumbo to a minimum.”

So now I have a new, succinct description of what I do:  “mumbo-jumbo.”

To try to make sense of the mumbo-jumbo, I think in terms of an analogy:

Quite apart from its economic merits, the attractiveness of ABS for investors has become something of a hostage to financial regulation.  On 26 September 2012, Jonathan Faull,  director-general, Internal Market and Services at the European Commission wrote to Gabriel Bernardino of EIOPA (the European insurance regulator) suggesting that capital requirements under Solvency II for “long-term investment”, such as investment in infrastructure projects, could be reduced, including where such investment is made in the form of securitisation.  It has been reported that the ECB is promoting the idea that certain ABS be eligible for inclusion in the liquidity buffer under Basel III. Both of these changes could greatly increase the liquidity and hence the attractiveness of certain types of asset-backed security. 
Continue Reading Are regulators waking up to the need to encourage securitisation?