Industry groups have submitted comments pointing out these issues, and it remains to be seen whether and to what extent the SEC will take them into account in adopting final rules. As a global, elite law firm, Shearman & Sterling represents many of the worlds leading corporations and major financial institutions, as well as emerging growth companies, governments and state-owned enterprises, on ground-breaking, precedent-setting matters. Violations of the swaps rules promulgated by the CFTC will be subject to enforcement and penalties by the CFTC. 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. The courts have also identified a variety of other factors that do not fall within the categories above but may be indicative of a secured loan, including: Some states have sought to bolster securitisations by restricting recharacterisation of a purported sale transaction. who circulates opportunities weekly via email. When it comes to seat allocation, incoming trainees wont get a choice over their first seat, with each of the newbies placed according to business need. and 'Why Shearman & Sterling?' A place like Shearman & Sterling one of the elite international law firms. vertical risk retention by holding of at least 5% of each class of ABS interests issued; horizontal risk retention by holding junior most interests in an amount equal to at least 5% of the fair value of all ABS interests issued; and. US domestic corporations are generally disfavoured, in part because of the entity-level tax applicable to corporations and in part because of the mandatory fiduciary duty that directors have to the shareholders, which can cause difficulties in delinking the SPE from its parent. 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. 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. While that analysis is not a legal analysis per se, it will involve a review of the various contractual rights existing in the transaction documents. The firms initiatives include WISER (Womens Initiative for Success, Excellence and Retention), BLAQUE (Black Lawyers Aligned in the Quest for Excellence), AACES (Asian Attorneys for Community, Empowerment and Success), and finally: BUILD (Black Undergraduate Internship & Lawyer Development). In addition, for some securitisations, there will often be certain obligations around the delivery of reports and other relevant information to a back-up servicer. reducing the risk of the issuer becoming substantively consolidated with any affiliates should they become subject to bankruptcy proceedings. The SEC has the power to enforce its rules. The agencies may also impose civil monetary penalties that can range between USD5,000 and USD1 million per day, and it may seek to impose removal and prohibition orders against any institution-affiliated party (a potentially broad list of persons), which may remove and potentially bar the person from participating in the business of the relevant banking entity or other specified entities. Like most of the big US firms with a presence in London, Shearman & Sterlings origins in the Big Apple was a big part of the draw for trainees. Shearman & Sterling represented the initial purchasers in connection with Shinsun Holdings (Group) Co., Ltd.s debut offering of $200 million 10.5% senior notes due 2022. Applicable tax laws may also cause debt instruments to be characterised as equity interests for purposes of that determination. Therefore, the rule does not pose an issue for registered ABS sold after the effectiveness of the post-crisis changes to Rule 15d-22(b) that require ABS reporting for the life of the deal. Enforcement and Penalties for Non-compliance. 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. On 13 December 2021, the Federal District Court in Delaware denied the Trusts motions to dismiss the complaint on the grounds that the securitisation Trusts meet the definition of covered persons, because even if they themselves do not directly service the loans, they engage in loan servicing through third-party servicers who perform those functions on their behalf. 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 court did not decide whether the Trusts have any liability for the actions of the servicers only that the CFPB has enforcement jurisdiction over the Trusts. However, asset-level disclosures of the level of detail required in Reg AB II offerings are not commonly included in private placements. Number of lawyers worldwide: 800+. The structure allows for multiple series of securities to be issued that all share in assets of the master trust. Shearman & Sterling LLP 20 ans Partner janv. 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. Robert Rudnick is especially active in tax controversy. SPEs used in securitisations can theoretically take almost any organisational form, including a limited liability company, a corporation, a trust or a partnership. To provide broader relief, Congress passed the Adjustable Interest Rate (LIBOR) Act (the LIBOR Act), which was signed into law in March 2022. shortfalls in reserves or over-collateralisation; outstanding amounts exceeding applicable collateral borrowing value; delinquencies or charge-offs in excess of specified thresholds; and. The securitisation must also satisfy some additional requirements, including having a trustee with certain minimum qualifications holding either title or a security interest in the assets, and investors in securities that are either below investment grade or not fixed-income securities must satisfy certain qualification requirements. The old trope of competition at US firms was something that the current intake was quick to dismiss too. abstain from engaging in certain abusive or anti-competitive conduct. The formulae are focused on capturing the material risks that are common for the particular insurance lines of business. The actual information about the pool only needs to be provided two business days prior to settlement. Number of partners worldwide: 200+ The issues and regulations are similar to the general securitisation structure in double SPE structure securitisations, but the titling trust may require additional analysis for purposes of the Investment Company Act exemption compared to the other entities in the structure. Title VII of the DoddFrank Act establishes a comprehensive regulatory framework for OTC derivatives to address a number of aspects of OTC derivatives that were identified as causing vulnerabilities in the financial system; in particular, the complexity, lack of transparency and interconnectivity of the OTC market and the lack of consistent margin requirements. Consequently, the risk of substantive consolidation is generally addressed by requiring the SPE and its credit to be separate from its affiliates based on factors that speak for substantive consolidation identified in the case law. Shearman & Sterling represented the initial purchasers in connection with Shinsun Holdings (Group) Co., Ltd.s offering of $200 million 12% senior notes due 2023. If there have been no such requests, an annual Form 15-G filing must be made attesting to that fact. The USA also does not include ABS among high-quality liquid assets (HQLA) in which a bank may invest to cover for its projected net cash outflows over a 30-day period (in the case of the liquidity coverage ratio). 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. 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. 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. SOFR is a secured rate derived from borrowing and lending activities on US treasuries. Shearman & Sterling LLP stands out for its expertise in high-profile energy and infrastructure projects in Indonesia, as demonstrated by its advice to Masdar and PT PJB Investasi on the development and financing of a 145MW floating solar PV project over the Cirata reservoir. The firm has in-depth experience in all aspects of the public and private offering and distribution of structured finance securities. Many of these issues are addressed as part of the structuring of the SPE. A guide to legal practice areas. These types of contracts can therefore be used as a means of transferring exposure to the assets underlying a securitisation as an alternative to a true sale. The firm looks at the top schools, but also we look for impressive students 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. There are also some client secondments available in the financial space, covering investment banks and companies like ICE (Intercontinental Exchange). Come qualification time, third-seaters receive a list of teams who are looking to hire for that year. In June 2017, the ARRC identified SOFR as its preferred alternative to LIBOR for many purposes, including securitisations. It is typically used for retail auto loans, equipment leases, student loans, consumer loans and a number of other asset classes. We also expect candidates to be able to speak knowledgeably about our place in the industry at large, Gascoyne says. In private deals, the investor vote required for certain actions is primarily a negotiated point, although in registered securitisations these requirements are more prescribed. As such, it is typical to obtain an opinion of counsel relating to the treatment of the notes issued by the SPE as debt for tax purposes and, depending on the activities of the SPE and the level of comfort provided under such opinions, to include additional transfer restrictions on instruments that are, or could be, equity for tax purposes so as to avoid the SPE becoming taxed as a corporation. degree of difficulty in segregating and ascertaining individual assets and liabilities; presence or absence of consolidated financial statements; profitability of consolidation at a single physical location; commingling of assets and business functions; unity of interests and ownership between the various corporate entities; existence of parent or intercorporate guarantees or loans; and. Toronto Summer Program. Shearman & Sterlings Tax practice plays an integral role in the firms corporate and cross-border practice and provides tax capability in France, Germany, the United Kingdom and the United States. 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. In a securitisation transaction it is common for tax counsel to provide an opinion addressing the tax treatment of the issued securities; in particular, whether the offered notes would be treated as debt securities for US federal income tax purposes. The SEC regulates the offer and sale of securities issued by a synthetic securitisation and the issuers Investment Company Act exemptions are the same as in a traditional securitisation. While new securitisation documents can provide for an effective alternative reference rate, LIBOR transition has posed more difficult problems for many existing ABS and their underlying pool assets. Servicers are typically the sponsor or an affiliate of the sponsor. Shearman & Sterling represented the dealer managers in connection with the exchange offer by Guangdong Hong Kong Greater Bay Area Holdings Limited of any and all of its outstanding 14% senior notes due 2021 for 13.85% senior notes due 2023. The firm now recruits exclusively through its vacation scheme. The covenants will typically address payment obligations, collateral maintenance and perfection obligations, rights and related procedures concerning adding and removing underlying assets, reporting obligations, and various negative covenants intended to maintain the integrity of the securitisation. 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. Therefore, quotations of Rule 144A ABS generally are allowed without further inquiry by the broker-dealer. The court also has the power to: Creditors may also be restricted from exercising rights that trigger off a debtors bankruptcy or financial condition (so-called ipso facto clauses). Insurance companies capital requirements are subject to state regulation. However, the SEC has to date not done so, and the Treasury has recommended against such expansion. There may also be additional representations relating to the nature and characteristics of the relevant assets. Legal. Certain types of LIBOR fallback provisions will be disregarded: provisions that base the LIBOR replacement in any way on a LIBOR value, except to account for the difference between LIBOR and the benchmark replacement; and. In turn, this has allowed for the emergence of a highly liquid to-be-arranged (TBA) market, where pools of MBSs are deemed to be fungible, and traded, on the basis of a few basic characteristics, such as the issuer, amortisation type (eg, 30 years or 15 years), the coupon rate, the settlement date and the maximum number of mortgage securities per basket. Not surprisingly, the more numerous the secured loan characteristics, the greater the likelihood that the transaction is viewed as such. While loans is a broad term for the purposes of that exclusion, there are significant limitations on an SPEs ability to hold derivatives (other than for the purposes of hedging interest and currency risk) and securities (other than for certain short-term cash-management purposes). Shearman & Sterlings compensation is aligned with the standard market-rate salary scale. They are strong academics, evidence of relevant work experience, tailored answers to our questions, and an error-free application form. Vinson & Elkins awards some of the brightest law students from top law schools in the U.S. with Diversity Fellowships each year. Registered investment companies are subject to leverage and capital structure requirements that are incompatible with a securitisation. the transferors obligation to pay the transferees collection costs for delinquent or uncollectible financial assets. These are used in agency-guaranteed securitisation and are described in more detail in 4.13 Participation of Government-Sponsored Entities. 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 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. Financial assets the ARRC identified sofr as its preferred alternative to LIBOR for purposes. Competition at US firms was something that the current intake was quick to dismiss too shearman and sterling chambers student... Issuer becoming substantively consolidated with any affiliates should they become subject to enforcement and penalties by CFTC... 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