There was a lot of seeking out case law, and work on public deals meant we needed to keep our ears to the ground for developments in the market. Non-research tasks included standard due diligence and reviewing uploads into the data room. Contributions to SPEs in exchange for a corresponding increase in the value of any equity held in such SPE would typically also be good consideration. 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. Shearman & Sterling 2023 | Attorney Advertising, Committee on Foreign Investment in the United States (CFIUS), Financial Institutions Advisory & Financial Regulatory, Environmental, Social and Governance (ESG), EU General Data Protection Regulation (GDPR), Future of Financial Services Regulation in the UK, Global Compliance & Anticorruption (FCPA), Special Economic Zone and Regulatory Drafting. The extent to which regulators will address securitisation industry feedback on rules that are not yet final remains to be seen. Graduate recruitment manager, Paul Gascoyne tells us the online form is pretty standard and contains three open-ended questions: 'Why do you want to be a solicitor?' Shearman & Sterling is excellent not only in legal matters but one of their important strengths is in providing strategic advice to clients. They do not go with ready-made solutions but actually listen to client needs and address their services and advice accordingly. Applications for 2022 vacation schemes were high; the firm received around 2,000 applications for its 15 training contract vacancies. Because there are differences between CLOs and other private funds, the potential application of certain aspects of the proposed rules to existing and future CLO transactions remains unclear. This other question of the Trusts vicarious liability for the servicers conduct remains a critical open point and is likely subject to further years of litigation before it is decided or may not be decided at all if the case is settled. clarifying that the rules preempt any state or local law or standard relating to the selection or use of a benchmark replacement or benchmark replacement conforming changes. Consequently, the traditional means of addressing the Volcker Rule have been to avoid relying on any of these exemptions. Shearman & Sterling 2023 | Attorney Advertising, Committee on Foreign Investment in the United States (CFIUS), Financial Institutions Advisory & Financial Regulatory, Environmental, Social and Governance (ESG), EU General Data Protection Regulation (GDPR), Future of Financial Services Regulation in the UK, Global Compliance & Anticorruption (FCPA), Special Economic Zone and Regulatory Drafting. annual reports on Form 10-K (with certain ABS-specific modifications specified in Reg AB II); Issuer Distribution Reports on Form 10-D. post specific portions of its Form NRSRO registration on its website; maintain certain records, including in relation to its control structure, for three years; furnish certain financial reports, including audited financial statements and an annual certification, to the SEC; maintain and enforce written policies and procedures to prevent misuse of material non-public information and to address conflicts of interest; and. 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. However, the recent October amendments to the Volcker Rule allow for a small bond basket, thereby removing one of the restrictions that have prevented CLO managers from engaging in a bond/loan arbitrage that was popular prior to the promulgation of the Volcker Rule. Vac schemers undertake the assessments outlined above written and group exercises, a case study assessment, plus a partner interview during the second week of their placement. Participation agreements will also typically include provisions relating to a participation buyers ability to give consent and otherwise participate in voting actions relating to the underlying asset, as well as elevation rights that establish when either party to the participation can call for reasonable efforts to effectuate a full assignment of title. The firms success is built on its clients success. The firm is certainly great, The intersection of legal and accounting requirements often plays a significant role in structuring a securitisation transaction. About 90% of the US securitisation market consists of mortgage-backed securities that were issued or guaranteed by Ginnie Mae, Fannie Mae and Freddie Mac, and are expressly exempt from registration pursuant to the relevant congressional act by which such entities were formed. 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 SECs proposed rules would require that registered investment advisors to private funds obtain audited annual financial statements of, and provide quarterly statements regarding fees, expenses and performance for, each private fund it advises, and investment advisers would be required to deliver a fairness opinion in connection with adviser-led secondary transactions in which existing fund investors are offered the option to exchange their investments for interests in other entities managed by the same adviser or related persons. Consequently, the SPE is usually structured to avoid entity-level taxation. As noted above, transactions that violate the securities laws may be voidable and may give rise to both private and public enforcement. 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. Shearman & Sterling represented the initial purchasers in connection with TaiChen Development (BVI) Limiteds tap offering $65 million 12.5% senior notes due 2022, unconditionally and irrevocably guaranteed by Longjitaihe Property Co., Ltd. Jiayuan International Group Limiteds Tender Offer And $300 Million Bond Offering. Where the securitisation involves securities within the meaning of the Investment Advisers Act of 1940, as amended (the Advisers Act), such as CLOs, and involve more active or discretionary management of the collateral, the agreement would also typically address requirements and prohibitions under the Advisers Act and rules promulgated thereunder. These funds are used to service interest and principal on the issued securitisation notes and are otherwise available to acquire new receivables or loans, as applicable. For example, the Basel III capital rules penalise banks that invest below the most senior position in a securitisation, thereby impacting banks willingness to invest in mezzanine tranches and below. Legal. The case is currently stayed and briefs have been filed, including an amicus curiae brief filed by the Structured Finance Association in support of the Trusts position. For those trainees hoping for the luck of the draw, the projects development & finance (PDF) seat is one plenty will have their eye on. In CLOs the servicing agreement is typically referred to as a Portfolio Management Agreement, Collateral Management Agreement or Investment Management Agreement (or similar term). And its no surprise. imposing higher capital requirements on non-exchange-traded OTC derivatives. Once all the applications have been submitted, trainees have an end-of-seat roundtable review with the training principal and hiring partners to discuss their prospects and interests. Delaware is viewed as a favourable jurisdiction for forming business entities. Chambers and Partners guides offer in-depth analysis of the legal market within countries and regions across the globe. The master trust receives the proceeds from the repaid loans and uses those proceeds in part to pay interest and principal on the issued notes. Because of the significant consequences to the securitisation transaction, the rating agencies tend to require an opinion to the effect that the SPEs activities would not amount to it engaging in a US trade or business. Violations of the swaps rules promulgated by the CFTC will be subject to enforcement and penalties by the CFTC. In June 2017, the ARRC identified SOFR as its preferred alternative to LIBOR for many purposes, including securitisations. Because most collateralised loan obligation (CLO) transactions rely on Section 3(c)(7) of the Investment Company Act of 1940, as amended, for an exemption from investment company status, those CLOs constitute private funds within the meaning of the Advisers Act, and the proposed rules may therefore become applicable to those CLOs and related collateral managers, if adopted in their proposed form. Section 3(c)(7) provides a general registration exemption for issuers that do not publicly offer their securities and limits their investors to qualified purchasers. Therefore, quotations of Rule 144A ABS generally are allowed without further inquiry by the broker-dealer. with respect to transactions where the underlying pool assets bear floating rates, a transition of a specified percentage of those assets from LIBOR based to adjusting using an alternative index. pleb1. London, United Kingdom. Admittedly, I had no idea what these terms meant going in, one trainee (reassuringly) quipped, but you learn so much as you go. In fact, trainees told us that through regular meetings, the firm was always transparent about what trainees could get involved in, which ranged from document management and helping with conditions precedent, to board minutes and one-on-one emails with clients and counsel. The SEC has the power to enforce its rules. Forget Sterling Silver Shearman is going for gold! Applicable tax laws may also cause debt instruments to be characterised as equity interests for purposes of that determination. Registered investment companies are subject to leverage and capital structure requirements that are incompatible with a securitisation. events of default that give rise to a right to accelerate the transaction and exercise remedies, including the ability to enforce against collateral (sometimes with collateral sales being subject to additional consent requirements, unless a sale would generate sufficient proceeds to pay the secured notes in full). If a debtor becomes subject to bankruptcy proceedings, creditors will, with some exceptions, be automatically stayed from collecting and enforcing against the debtor and any posted collateral. One trainee even enthused about stickers. 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. The ARRCs recommendations suggested the use of a waterfall of fallback language to deal with the potential discontinuance or effective unavailability of LIBOR. However, there is significant uncertainty around a bankruptcy courts acceptance of such statutes, and securitisations are therefore typically structured to comply with the judicially created true sale criteria. As such, the TBA market permits lenders to lock in rates for mortgages before they are originated, which, in turn, allows borrowers access to lower, locked-in rates. In addition, insurance regulations typically specify concentration limits for various categories of investments. The firm looks at the top schools, but also we look for impressive students The Exchange Act allocates enforcement authority for the risk retention rules to the appropriate federal banking agency with respect to any securitiser that is an insured depository institution and the SEC with respect to any other securitiser. If the determining person does not select any non-LIBOR benchmark replacement, the benchmark replacement selected by the Federal Reserve will automatically replace the LIBOR rates in the contract. Wilful violations of the Risk Retention Rules may also give rise to federal or state criminal actions. Prenetics Announces Closing of Business Combination with Artisan Acquisition Corp. Shearman & Sterling represented the placement agents on the PIPE in connection with Prenetics Global Limiteds previously announced business combination with Artisan Acquisition Corp. Guangdong Hong Kong Greater Bay Area Holdings Limited's Exchange Offer and New Money Offering. The primary investor protections follow from the general and specific securities laws described in this chapter. Those rules, which were proposed in July 2022 and adopted in December 2022, will become effective 30 days after their publication in the Federal Register. for Federal Family Education Loan Program (FFELP) loan ABS, either 30-day average SOFR (for one-, six-, and twelve-month LIBOR) or 90-day average compounded SOFR (for three-month LIBOR). Phase 2 was scheduled to extend from 4 January 2023 through 4 January 2024, and Phase 3 was scheduled to begin on 5 January 2024 and extend indefinitely. The minimum risk weight that will be given to a securitisation exposure is 20%. Training contract deadline: Apply for a training contract through a vacation scheme. As one trainee put it, the seat is a good one if you enjoy black letter law. Shearman & Sterlings regional expertise extends from North and South America to the Middle East, Asia, Africa and Europe. Servicers are typically the sponsor or an affiliate of the sponsor. One client remarks that it is adept at moving at pace dealing with complex Vac schemers spend each week in a different department. You hear that US firms have cut-throat cultures, but that isn't the case, one emphasised. The issuer will receive cash flows from the permitted investments and the CDS protection premiums. In this structure, one SPE acts as the depositor (typically structured as an LLC) and the other SPE is the issuer (typically structured as a trust). The sponsor is responsible for compliance with risk retention and other relevant regulatory requirements. With respect to the individual rankings, more than half of the firms U.S. partners are recognized as leaders in their respective practice areas. The typical items of documentation used to effectuate bankruptcy-remote transfers are: As previously noted, title is not dispositve of ownership, nor is it necessary for the consideration to be in the form of cash. The flexibility to structure securitisations to such needs often makes securitisations particularly attractive to insurance companies. Issuers are typically SPEs that are restricted from engaging in activities unrelated to the securitisation. The Volcker Rule discussed below has made it less attractive for securitisation SPEs to rely on Section 3(c)(7), although the exemption is still relied on by actively managed CLOs. The ARRC has recommended a spread adjustment methodology for non-consumer products based on a historical median over a five-year lookback period calculating the difference between US dollar LIBOR and SOFR, which matches the methodology recommended by the International Swaps and Derivatives Association (ISDA) for derivatives. The CLO issuer will typically be organised as a Cayman Island company and structure its loan acquisitions in a manner that avoids it being engaged in any US trade or business, as discussed in 2. Shearman & Sterling represented the initial purchasers in connection with Jiayuan International Group Limiteds offering of $130 million 11% senior notes due 2024. General banking rules may also come into play when structuring a bank-sponsored securitisation, such as restrictions on affiliate transactions set forth in Sections 23A and 23B of the Federal Reserve Act and the implementation thereof set forth in Regulation W. Organisational Forms of SPEs Used in Securitisations. The purpose is to allow NRSROs that have not been hired to have access to the same information in real time that is provided to the hired NRSROs. Banks are highly regulated entities and are also subject to a separate insolvency regime compared to other entities, and are therefore not eligible for bankruptcy protection. 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