Many of these changes do not appear to be focused primarily on asset-backed securities (ABS) or the securitisation markets, but present unforeseen and challenging consequences. New York firm Shearman & Sterling LLP benefits from its long-term dedication to Brazil. If there have been no such requests, an annual Form 15-G filing must be made attesting to that fact. Two rounds, the first includes an interview and the second a proper assessment centre with a group exercise, a written exercise, a case study and another interview. daily simple SOFR in arrears, calculated using simple interest over the current interest period; SOFR compounded in arrears, calculated by compounding interest over the current interest period; and. In a recent case, Shearmans international arbitration group represented Swiss bank EFG in a dispute over the banks alleged participation in a fraudulent scheme that resulted in the bankruptcy of an insurance company in Taiwan.. Shearman & Sterling advised the lenders, comprising Sumitomo Mitsui Banking Corporation, ING Bank NV, DBS Bank Ltd, Bank of China Limited, Mizuho Bank Limited and Socit Gnrale, on the refinancing of the 220 MW Bhola Combined Cycle Gas Turbine project in Bangladesh. satisfaction of specified eligibility criteria when sold; all required consents and authorisations having been obtained; various additional tailored representations. Wilful violations of the Risk Retention Rules may also give rise to federal or state criminal actions. In September 2017, the Consumer Financial Protection Bureau (CFPB) filed suit against 15 National Collegiate Student Loan Trusts (the Trusts), alleging that the Trusts had violated the Consumer Financial Protection Act (CFPA) by engaging in unfair and deceptive practices in connection with the servicing and collection of the private education (not Federally guaranteed) student loans owned by each of the Trusts (but not originated nor serviced by any Trust entity). Variations on the ARRC recommended fallback language are now commonly included in US securitisations. The ARRC has cast doubt on a broad use of term SOFR in its recommended best practices. Shearman & Sterling's compensation is merit-based. The trustees also undertake other specified administrative tasks, but typically avoid taking any discretionary actions other than pursuant to a direction from the relevant noteholders. Consequently, the SPE is usually structured to avoid entity-level taxation. The intersection of legal and accounting requirements often plays a significant role in structuring a securitisation transaction. The DoddFrank Act had the effect of causing swaps to be included in the definition of commodity pool under the CEA and under the definition of security for purposes of the Securities Act and the Exchange Act. This option reinforces the notion that registered ABS where the issuer is subject to Exchange Act reporting requirements do not pose compliance issues under the Rule 15c2-11(b). The movement is in the right direction.. Shearman & Sterling continues to garner recognition in the 2023 edition of Chambers UK receiving 35 rankings in the new edition, including 13 practice and 22 individual rankings. For example, a single-member limited liability company (LLC) is, for federal tax purposes, disregarded (in the absence of the SPE electing any contrary tax treatment) and therefore any transfer of assets from a parent to its wholly owned LLC will not be a taxable event. The combination of our extensive experience and global presence enables us to provide clients with swift, coordinated and effective advice on a variety of tax issues in multiple jurisdictions. Enforcement and Penalties for Non-compliance. The Federal Deposit Insurance Act (FDIA) provides the bank regulatory agencies with broad enforcement powers against individuals and entities for violation of the applicable banking laws and regulations, including the Risk Retention Rules. These are typically used in dealer floor plan securitisations and credit card securitisations. Reg AB II deviates from the typical shelf registration practice of using a base prospectus and a supplemental prospectus, and instead requires the filing of one integrated prospectus. Guangzhou Fineland Real Estate Developments Exchange Offer and Concurrent New Money Offering. The ARRC, after issuing consultations and soliciting feedback, recommended fallback language for securitisations to facilitate a benchmark transition from LIBOR to SOFR in May 2019. Shearman & Sterling advised IFC on the first housing bond issued in Bangladesh, provided to BRAC Bank Limited. The exact levels and types of credit enhancement will depend on the ratings requirements relating to the desired ratings levels, in addition to commercial constraints on the securitisation. Because SOFR is effectively a risk-free rate, it requires a spread adjustment, known as the applicable benchmark replacement adjustment in ARRC parlance, to match LIBORs unsecured and riskier calculation. Jiayuan International Group Limiteds Tender Offer. Shearman & Sterlings commitment to client service was once again honored in the 2022 edition of Chambers USA. In sum, Rule 15c2-11 rule does not appear to pose problems for brokers or dealers desiring to quote registered public ABS, at least so long as they are currently reporting. An SPE that is organised as a partnership or an LLC that has elected to be treated as a partnership for tax purposes would not be subject to entity-level tax, but transfers to a securitisation SPE that is treated as a partnership for tax purposes may have different tax consequences than transfers to a disregarded entity and, as such, it is possible to structure the SPE (and use a multi-SPE structure) so as to optimise the securitisation for the desired tax neutrality. The DoddFrank Act added a new Section 27B to the Securities Act intended to address certain conflicts of interest that, if implemented, could create significant hurdles for synthetic securitisations. If its the international side of the firms work that youre keen on, then there arent many places youll find more of it than in international arbitration. the safe harbour provisions of 12 CFR 360.6 relating to transfer of assets in connection with a securitisation, which are discussed in, the Basel III capital requirements discussed in. There may also be additional representations relating to the nature and characteristics of the relevant assets. There are extensive fundamental and technical differences between ABS and corporate issuers, not the least of which is that ABS issuers engage in limited activities that pose limited cybersecurity risks. In its simplest form, a synthetic securitisation will invest the proceeds from issuing securities in permitted investments and sell CDS protection on a particular financial asset. KWG Group Holdings Limiteds $258 Million Tap Offerings. Shearman & Sterling has historically run four vacation schemes: one in the winter, two in spring, and one in the summer. Trainees have shaped our success story and played a pivotal role in the firms growth. Securitisation disclosure requirements are in part governed by generally applicable securities laws, and in part by some ABS-specific requirements. 2010 - dc. Sponsors are typically in the business that generates the relevant underlying receivables or other financial assets, and also will typically organise and initiate the ABS transaction and engage in selection of the relevant assets. The tasks and the work that you do is always valued. Whats more, the firms client list includes most of the big banks you can name, from J.P. Morgan, Goldman Sachs and Credit Suisse to Barclays and HSBC. Consequently, a key aspect of securitisations is to isolate the issuer and its assets from such bankruptcy risks by: As an alternative to a true sale structure, it is also possible to transfer exposure to the securitised assets using contracts that are protected against the most troublesome bankruptcy powers. For example, an opinion assuming that the transfer is a true sale for accounting purposes would have to carve out the legal isolation analysis from such assumption. In addition, there will typically be separate covenants relating to the trustees obligations to act and rights not to act in accordance with instructions. Under the GAAP accounting rules, a true sale opinion from an attorney is often required to support a conclusion that transferred financial assets are isolated from the transferor and its consolidated affiliates. The London office opened 50 years ago and quickly became one of the In a typical securitisation the investors will have a right to payment, and investors will also have certain rights to direct the trustee to take enforcement actions, and the controlling class of noteholders will thereafter have enhanced ability to direct the trustee in accordance with the terms of the transaction documents. FATCA generally requires that: Foreign entities located in jurisdictions that have entered into intergovernmental agreements with the USA in connection with FATCA may be subject to special rules or requirements. Interest paid or accrued by a typical securitisation SPE to a foreign person will subject to the satisfaction of certain requirements relating to the investors US activities and equity or control person relationship with the SPE and related persons usually be exempt from withholding tax by virtue of falling within the portfolio interest exemption from withholding. While it was stipulated that the alleged misconduct resulted from actions taken by the Trusts servicers and sub-servicers in the course of their debt collection activities, and not by any actions taken by the Trusts themselves, the CFPB named only the Trusts as defendants in this lawsuit after having previously settled with the servicers involved. Each Fellow receives $25,000 and the opportunity to clerk in one of our U.S. offices the summer following their 1L or 2L year. The structure is otherwise typically similar to the two-tier structure previously described. Delaware statutory trusts (DSTs) and Delaware limited liability companies (DLLCs) are often the entities of choice for securitisations. The firm now recruits exclusively through its vacation scheme. The level of comfort is reflected in terms such as will, should and more likely than not, where will is the highest level of comfort and should still provide a high level of confidence but with a more than insignificant risk of a different conclusion. Providing U.S., English, French, German, and Hong Kong law advice from our offices in many of the worlds major financial centers, we have the knowledge and skills to counsel clients on The comprehensive regulation applicable to banks results in a parallel regulatory structure in the context of banks sponsoring securitisations that will apply to certain aspects of a securitisation transaction by banks. The latter opinion is frequently also required in the case of certain amendments to the corporate documents. Insurance companies capital requirements are subject to state regulation. If the CDS counterparty becomes subject to bankruptcy proceedings, the SPE will nevertheless have the right to terminate and close out each swap entered into with that counterparty, and realise against any collateral or other credit support relating to such swap, without being subject to the stay or the prohibition against ipso facto clauses. The rules governing such entities will be a combination of: The primary factors driving the type and jurisdiction of the securitisation entity will be bankruptcy remoteness and tax. Rule 3a-7 is available for entities holding primarily self-liquidating assets that are only sold or purchased in accordance with the terms of the transaction, and not for the purpose of capturing market gains or avoiding market losses. However, an outright prohibition against the SPE itself voluntarily filing for bankruptcy is unenforceable as against public policy and such risk must therefore be mitigated by more indirect means. The issuer is subject to Exchange Act reporting requirements and the issuer has filed all required periodic reports during the prior 12 months or any shorter time it has been required to file reports. These can be provided by third-party liquidity providers or as part of the servicing rights and obligations. In the UK In fact, many of these elements are present in most bankruptcy cases involving holding company structures or affiliated companies without thereby leading to substantive consolidation. It is common to obtain a true sale opinion in securitisation transactions that evaluates the relevant facts in light of the factors outlined above. The offering of securities in a synthetic securitisation will be governed by the Securities Act. At the time the ARRC fallback recommendations were released, term SOFR rates were purely theoretical: SOFR was primarily an overnight rate, measuring the cost of borrowing cash overnight as collateralised by US Treasury securities in the repurchase agreement market. A place like Shearman & Sterling one of the elite international law firms. Agency securities and private placements are not subject to ABS-specific disclosure requirements other than the disclosure requirements relating to risk retention, repurchase requests, the third-party due diligence disclosure and rating agency communication requirements. To be eligible for the relief provided under these no-action letters, the securitisation issuer must: The CFTC has also issued various interpretations that allow certain securitisation SPEs that are wholly owned subsidiaries of non-financial entities to avail themselves of certain exceptions from otherwise applicable clearing and margin requirements available to non-financial end users. Famous for: elite Wall Street firm; large English law practice; top-end salary, UK partners/solicitors/trainees: 33/86/23, Overseas seats: Singapore, Abu Dhabi, Brussels, Dubai. The firms lawyers are true business partners to their clients and pride themselves on forming long-standing working relationships, while navigating shifting regulations and market developments, to help clients succeed. Summer associate programs of In May 2022, the National Association of Insurance Commissioners (NAIC) issued a letter recommending adjustments to the risk-based capital (RBC) treatment of CLO investments held by insurance companies, in order to eliminate a perceived arbitrage opportunity. Shearman & Sterling has a distinguished history of supporting clients wherever they do business, from major financial centres to growing markets. ABS issuers generally do not prepare financial statements. Chambers and Partners guides offer in-depth analysis of the legal market within countries and regions across the globe. First, SOFR is an overnight rate, while LIBOR has been available in many different tenors (eg, one month, three months) and is forward looking. Anton Oilfield Services Groups $150 Million Exchange Offer and Concurrent New Money Offering. The CFTC has authority over most OTC derivatives, referred to as swaps in the Commodity Exchange Act (CEA), whereas the SEC has authority over OTC derivatives that fall within the Exchange Act definition of security-based swaps, which covers derivatives linked to single-name loans or securities, narrow-based indexes of loans or securities, events relating to such loans or securities, or their issuers. The ARRCs approach was not meant to be a binding directive, but merely an example of how an ABS product could be created using average SOFR. The sponsor must file Form 15-G on EDGAR at the end of any quarter in which there has been a repurchase demand made under the transaction documents for breach of representations and warranties. SOFR has been used routinely in CLOs, where the pool assets consist generally of floating rate commercial loans, but the ARRC has expressed displeasure over the recent use of term SOFR as the benchmark for other floating-rate ABS backed by fixed-rate receivables. US Summer Program | Shearman & Sterling. In determining whether a transfer is a true sale or a disguised loan, courts look to a number of factors. On the other hand, if such transfer is treated only as a granting of a security interest in collateral, then a bankruptcy of the seller will subject the buyers rights with respect to such assets to the automatic stay and other bankruptcy powers. Owner trustees typically act on behalf of the holders of any trust certificates issued by an issuer trust (if applicable). only hold derivatives for uses permitted under Regulation AB, such as credit enhancement and the use of derivatives to alter the payment characteristics of the cash flow. make payments based on cash flows and not based on changes in the issuers assets; not acquire or sell assets primarily for the purpose of realising market gains or minimising market losses; and. For example, this can be done by using a tax-transparent organisational form or by incorporating the SPE in a jurisdiction that does not impose such taxes. Industry groups submitted comments pointing out these issues, and the final scope of the rules remains to be seen. Shearman & Sterling Earns High Rankings in Chambers UK 2022 Shearman & Sterling continues to garner recognition in the 2022 edition of Chambers UK receiving 37 Yet despite the firms American twang, the London office has its own distinctive voice: The London office isnt just a satellite for the US, one source remarked, its a standalone office with its own work. Trainees also highlighted that a smaller trainee intake [of around 15 a year] means more responsibility early on, so the work you do as a trainee has a bigger impact. Prospective candidates can expect stiff competition, with as many as 2,000 applying for a place in 2022. Our Any Exchange Act violation could also result in equitable remedies, including the right of rescission. If a foreign securitisation issuer were to be engaged in US trade or business for US federal income tax purposes, it would become subject to US federal income tax and potentially also subject to state and local income tax. They are strong academics, evidence of relevant work experience, tailored answers to our questions, and an error-free application form. As such, an awareness of the types of features that drive the consolidation analysis is often important in structuring the SPE and drafting the relevant transaction documents. 11 years ago. Robert Rudnick is especially active in tax controversy. shortfalls in reserves or over-collateralisation; outstanding amounts exceeding applicable collateral borrowing value; delinquencies or charge-offs in excess of specified thresholds; and. Shearman & Sterling represented the initial purchasers in connection with Jiayuan International Group Limiteds offering of $130 million 11% senior notes due 2024. It is typically used for retail auto loans, equipment leases, student loans, consumer loans and a number of other asset classes. Investors in unfunded ABS tranches will typically have contingent funding obligations and may be required to provide additional credit support or face replacement if their credit drops below agreed levels. and 'Why Shearman & Sterling?' However, Section 27B requires implementing rules to be passed within 270 days, and to date no such regulations have been put in place. As such, broker-dealers can continue to provide quotations for ABS offered under Rule 144A if they reasonably believe that the issuer will provide the information specified in Rule 144(d)(4) upon request. Appointing an independent director whose fiduciary duty runs to the SPE and not to its shareholders, and employing an entity type that allows for such redirection of fiduciary duties, reduces the risk of a filing for the benefit of its shareholders. Abs-Specific requirements in 2022 shearman & Sterling one of our U.S. offices the summer their... 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