May 13, 2015 Webinar
Presented by EDR & EBA
“The Dodd-Frank Act” is all over the news. It’s reportedly killing community banks, and will impact all of the banking members in this distribution in some capacity. In continuation of a February Environmental Bankers Association - Risk Management Call (EBA-RMC) John Rybak and Greg Lampe of BB&T Bank, and attorney Brad Merrill of Snell-Wilmer, will provide an explanation of what’s going on, notably with respect to Banking Vendor Management (“vetting the vendors”).
Since its passage in 2010, implementation and interpretation of the 2,323 page long Dodd-Frank Act has touched most every part of banking including how banks use vendors, particularly in the area of mortgages and consumer compliance. Five years later there remains substantial uncertainty as new rule making continues. During our call we will provide a summary of key regulatory areas every banker should be aware of in vendor management as well as some of the general results of Dodd-Frank and exposure for non-compliance.
Insider Lease Agreements (Series: Fairness Issues in Real Estate-Based Bankru...Financial Poise
It is a common play in real estate to create a separate operating entity to serve as a tenant and execute a lease between the owner of the property and himself. Typically, this happens in assets which serve as a real estate-based business, such as a retail property. The structured enables the operator to reduce the taxable income of the business and also provide a liability shield for the property owner.
This arrangement can lead to some ethical issues, should the property owner become distressed. For example, is the lease amount above market and therefore being used to inflate the property valuation? Is rent actually being paid? Is there a proper lease in place or just an internal handshake? Attorneys need to understand the set-up in order to know what is in bounds and what is outside the lines.
To view the accompanying webinar, go to:https://www.financialpoise.com/financial-poise-webinars/insider-lease-agreements-2021/
WG Consulting & ZE PowerGroup Lunch and Learn: Presenting a Dodd-Frank Softwa...WG Consulting
During a Lunch and Learn held with one of our esteemed Partners, ZE PowerGroup, our panel of experts discussed the challenges corporations find with Dodd-Frank and presented the software that WG Consulting and ZE PowerGroup built as an answer to those challenges.
WG Consulting held an early morning breakfast seminar at the Houston Junior League to discuss the Dodd-Frank Compliance landscape as it currently stands as is expected to shape out--and how that effects energy businesses of all sizes today.
May 13, 2015 Webinar
Presented by EDR & EBA
“The Dodd-Frank Act” is all over the news. It’s reportedly killing community banks, and will impact all of the banking members in this distribution in some capacity. In continuation of a February Environmental Bankers Association - Risk Management Call (EBA-RMC) John Rybak and Greg Lampe of BB&T Bank, and attorney Brad Merrill of Snell-Wilmer, will provide an explanation of what’s going on, notably with respect to Banking Vendor Management (“vetting the vendors”).
Since its passage in 2010, implementation and interpretation of the 2,323 page long Dodd-Frank Act has touched most every part of banking including how banks use vendors, particularly in the area of mortgages and consumer compliance. Five years later there remains substantial uncertainty as new rule making continues. During our call we will provide a summary of key regulatory areas every banker should be aware of in vendor management as well as some of the general results of Dodd-Frank and exposure for non-compliance.
Insider Lease Agreements (Series: Fairness Issues in Real Estate-Based Bankru...Financial Poise
It is a common play in real estate to create a separate operating entity to serve as a tenant and execute a lease between the owner of the property and himself. Typically, this happens in assets which serve as a real estate-based business, such as a retail property. The structured enables the operator to reduce the taxable income of the business and also provide a liability shield for the property owner.
This arrangement can lead to some ethical issues, should the property owner become distressed. For example, is the lease amount above market and therefore being used to inflate the property valuation? Is rent actually being paid? Is there a proper lease in place or just an internal handshake? Attorneys need to understand the set-up in order to know what is in bounds and what is outside the lines.
To view the accompanying webinar, go to:https://www.financialpoise.com/financial-poise-webinars/insider-lease-agreements-2021/
WG Consulting & ZE PowerGroup Lunch and Learn: Presenting a Dodd-Frank Softwa...WG Consulting
During a Lunch and Learn held with one of our esteemed Partners, ZE PowerGroup, our panel of experts discussed the challenges corporations find with Dodd-Frank and presented the software that WG Consulting and ZE PowerGroup built as an answer to those challenges.
WG Consulting held an early morning breakfast seminar at the Houston Junior League to discuss the Dodd-Frank Compliance landscape as it currently stands as is expected to shape out--and how that effects energy businesses of all sizes today.
jimmy stepanian | Real estate commercial financing ideas | Jim stepanian |Jimmy Stepanian
The best real estate pros know a top deal when they see one. What is their secret? First, they have an exit plan the best deals are the ones where you realize you can walk away from.
This presentation is designed for those with responsibilities in the areas of compliance, human resources, lending, audit and management of Credit Unions and their mortgage lending subsidiaries. It will explain the necessary steps to take to be compliant with the new SAFE Act requirements.
MBA Compliance Essentials: Vendor Management Resource GuideMBAMortgage
The MBA Compliance Essentials Vendor Management Resource Guide™ is a part of the MBA Compliance Essentials Program, which includes deep-dive webinars and comprehensive resource guides to serve as base for the development of your company's policies and procedures in these important areas. This is only a sample purchase the full Resource Guide at www.campusmba.org
Authorisation under the new Consumer Credit regimeRachel Tandy
As of 1 April 2014. consumer credit businesses must now be authorised under FSMA rather than licensed under the Consumer Credit Act. These slides summarise the key changes.
Comprehensive Reporting
The Comprehensive Securitization Audit Report was created in order to serve the various purposes of securitization audit – from seeking the most favorable terms in a loan modification to supporting legal action to delay or defend against foreclosure or to seek relief from unfair or unlawful practices by lenders, servicers, and related institutions.
This report is different because it includes a section that discusses the contemplated profit that was to be made by the participants from securitizing a loan. The figures used in the computations are gathered from actual documents. It also states how soon the lender recovered the full amount it originally lent to the borrower instead of the 30 years it usually takes for the loan to be fully paid from the agreed monthly amortizations.
The Comprehensive Audit Report was conceptualized to be what a real audit should be – independent and unbiased, with the auditor or examiner free of any interest in its outcome. It neither attempts to sensationalize its findings nor ignore the present economic ramifications of the crash of the housing market that securitization helped to unfold.
The leveraged lending market has developed its own set of market terms and conventions, many of which do not exist outside of this market. This webinar gives a basic overview of leveraged finance credit agreements and the legal issues that arise when working on leveraged loans.
Part of the webinar series: LEVERAGED FINANCE 2021
See more at https://www.financialpoise.com/webinars/
What Kind of Loan? (Series: Business Borrowing Basics)Financial Poise
In a broad sense, most loans can be divided into two basic types: an asset-based loan (ABL) and a cash flow loan.
An ABL is made by a lender who underwrites the loan primarily by valuing the company’s assets, such as accounts receivable (A/R) and inventory. An ABL lender underwrites a loan based on the ability to liquidate its collateral should it need to. A “cash flow” lender, in contrast, while also secured against the borrower’s assets, underwrites the loan primarily based on the cash flow and general credit-worthiness of the borrower.
The distinction between these types of loans is only the beginning of understanding the many types of loans available to a business, because within each of the two types there are many subtypes.
This webinar takes the audience through a guided tour of the various borrowing options available to businesses, from both a business and legal perspective, to paint the overall landscape of the different types of lenders that exist and to provide a framework for understanding what type of lender and loan may make sense for any particular borrower.
To view the accompanying webinar, go to: https://www.financialpoise.com/financial-poise-webinars/what-kind-of-loan-2021/
jimmy stepanian | Real estate commercial financing ideas | Jim stepanian |Jimmy Stepanian
The best real estate pros know a top deal when they see one. What is their secret? First, they have an exit plan the best deals are the ones where you realize you can walk away from.
This presentation is designed for those with responsibilities in the areas of compliance, human resources, lending, audit and management of Credit Unions and their mortgage lending subsidiaries. It will explain the necessary steps to take to be compliant with the new SAFE Act requirements.
MBA Compliance Essentials: Vendor Management Resource GuideMBAMortgage
The MBA Compliance Essentials Vendor Management Resource Guide™ is a part of the MBA Compliance Essentials Program, which includes deep-dive webinars and comprehensive resource guides to serve as base for the development of your company's policies and procedures in these important areas. This is only a sample purchase the full Resource Guide at www.campusmba.org
Authorisation under the new Consumer Credit regimeRachel Tandy
As of 1 April 2014. consumer credit businesses must now be authorised under FSMA rather than licensed under the Consumer Credit Act. These slides summarise the key changes.
Comprehensive Reporting
The Comprehensive Securitization Audit Report was created in order to serve the various purposes of securitization audit – from seeking the most favorable terms in a loan modification to supporting legal action to delay or defend against foreclosure or to seek relief from unfair or unlawful practices by lenders, servicers, and related institutions.
This report is different because it includes a section that discusses the contemplated profit that was to be made by the participants from securitizing a loan. The figures used in the computations are gathered from actual documents. It also states how soon the lender recovered the full amount it originally lent to the borrower instead of the 30 years it usually takes for the loan to be fully paid from the agreed monthly amortizations.
The Comprehensive Audit Report was conceptualized to be what a real audit should be – independent and unbiased, with the auditor or examiner free of any interest in its outcome. It neither attempts to sensationalize its findings nor ignore the present economic ramifications of the crash of the housing market that securitization helped to unfold.
The leveraged lending market has developed its own set of market terms and conventions, many of which do not exist outside of this market. This webinar gives a basic overview of leveraged finance credit agreements and the legal issues that arise when working on leveraged loans.
Part of the webinar series: LEVERAGED FINANCE 2021
See more at https://www.financialpoise.com/webinars/
What Kind of Loan? (Series: Business Borrowing Basics)Financial Poise
In a broad sense, most loans can be divided into two basic types: an asset-based loan (ABL) and a cash flow loan.
An ABL is made by a lender who underwrites the loan primarily by valuing the company’s assets, such as accounts receivable (A/R) and inventory. An ABL lender underwrites a loan based on the ability to liquidate its collateral should it need to. A “cash flow” lender, in contrast, while also secured against the borrower’s assets, underwrites the loan primarily based on the cash flow and general credit-worthiness of the borrower.
The distinction between these types of loans is only the beginning of understanding the many types of loans available to a business, because within each of the two types there are many subtypes.
This webinar takes the audience through a guided tour of the various borrowing options available to businesses, from both a business and legal perspective, to paint the overall landscape of the different types of lenders that exist and to provide a framework for understanding what type of lender and loan may make sense for any particular borrower.
To view the accompanying webinar, go to: https://www.financialpoise.com/financial-poise-webinars/what-kind-of-loan-2021/
Know how to recognize and find solutions to valuing, managing, buying, and selling troubled real estate assets? After attending this forum you will have a good grip on the life cycle of a troubled asset and how you can recognize where business opportunities exist.
Listen as a banker, a broker and a property manager currently active in this market discuss such topics as:
• Identifying lender, broker, manager, and owner objectives.
• The cradle to grave story.
• The pitfalls of working the Troubled Asset Market.
• Identifying opportunities for yourself and your
clients.
• Where do REO listings reside?
• Get a feel for foreclosures and short sales.
• What is the sales hot button?
Business Borrowing Basics 2020 - Dealing With DefaultsFinancial Poise
Some borrowers default. One type of default is a payment default- the loan is not paid when due or a particular payment is missed. The other type of default is a covenant default. This webinar explains both, and discusses what happens when one happens.
To view the accompanying webinar, go to: https://www.financialpoise.com/financial-poise-webinars/dealing-with-defaults-2020/
Basic Concepts Applicable to All Borrowers & LendersFinancial Poise
A business borrows when it purchases goods or services on credit. And a small business may only “borrow” money in this fashion. At the other extreme is a large business with multiple lending facilities, with multiple lenders. Regardless, and regardless of the type of loan (i.e. cash flow, asset-based, etc.), many of the concepts are the same. This webinar arms the attendee with the basic vocabulary necessary to negotiate any type of loan.
Part of the webinar series: Business Borrowing Basics 2021
See more at https://www.financialpoise.com/webinars/
Basic Concepts Applicable to All Borrowers & Lenders (Series: Business Borrow...Financial Poise
A business borrows when it purchases goods or services on credit. And a small business may only “borrow” money in this fashion. At the other extreme is a large business with multiple lending facilities, with multiple lenders. Regardless, and regardless of the type of loan (i.e. cash flow, asset-based, etc.), many of the concepts are the same. This webinar arms the attendee with the basic vocabulary necessary to negotiate any type of loan.
To view the accompanying webinar, go to: https://www.financialpoise.com/financial-poise-webinars/basic-concepts-applicable-to-all-borrowers-lenders-2020/
Asset Alliance |Financing Broker Dubai
Asset Alliance has a professional team with expertise in finance, mortgage and loan brokers in Dubai.
Financing Broker,personal loan,Personal Loan,SMEs Business Loan,POS Loan ,Mortgage ,Business bank, account,Credit Card,Buy out Loan,Debt Consolidation,
Car/ Auto Loan,Bank guarantee & Trade Finace Dubai.
Understand Everything About Long Term Note (LTN).pptxhansongroupus
In the context of commercial relations, all parties involved must ensure guarantees in order to obtain a proper collection of their debts - the Long Term Note is often used for this purpose. Read more: https://bit.ly/3GL2myP
A deposit is a pre-agreed instalment towards the purchase price in a sale contract.
The Courts have held that the 2 functions of a deposit are to be:
- an earnest commitment to bind the bargain, which means a deposit acts as an indication the Buyer is serious in carrying out the bargain; and
- a guarantee of due performance, that is security of the performance.
A deposit is usually paid at or upon shortly upon the buyer’s signing of the contract.
Usually, a deposit should be no more than 10% of the total purchase price, and commonly may be less. Note: there is no specific laws on that deposit percentage amount per se*.
The other practical, commercial and financial reasons for why a deposit is useful:
> Often the seller will incur not-insignificant fees and expenses (e.g. sale preparatory work and undergoing due diligence, applying to lessor for consent to assignment of lease etc), independent of whether the actual contract proceeds to settlement or completion. So may be also used to partially-compensate for some of those costs incurred If the buyer ultimately walks away”.
> Loss of potential, other sale opportunities during the express or implied exclusivity period during the conditions precedent of sale contract. This could be months or longer
> It's good to have the buyer show it has “skin in the game” by having such "hurt money" put upfront on & the table.
Tip: Even with the best of Confidentiality Deeds/NDAs , the deposit helps reinforce the value and proprietary nature of the seller’s business or entity.
> Not uncommonly, the Buyer entity may be newly-established . Therefore, if there is default or repudiation, even if they are subsequently pursued by the seller, the Buyer may not have any actual capitalisation to be realised against!
> Lastly, if a buyer or won’t (or can’t!?) put up even the deposit, then you should have serious concerns about their financial capacity to commit all the way through the transaction.
2016 Year in Review: Recent Midwest Legal Decisions Impacting Real Estate and...Quarles & Brady
In 2016, the Midwest (which we will define as Illinois, Indiana, Iowa, Michigan, Minnesota, Missouri, Ohio, and Wisconsin) saw a number of statutory changes and court decisions that reshaped and framed a number of key issues every developer, design professional, owner, lender, contractor, and real estate and construction lawyer must know.
Key Bankruptcy Considerations Heading into a RecessionQuarles & Brady
As the impact of the COVID-19 pandemic continues to evolve, US businesses are already feeling the impact of a potential economic downturn. Presenters will discuss key considerations that may present themselves in the event of a recession, including modification and forbearance agreements, amendment/default scenarios, risks regarding "slow pay" and termination of key contracts, and priority rights of suppliers in bankruptcy, as well as implications of the Small Business Bankruptcy Act for potential debtors.
Action Steps for Your Employee Benefits Plan During the Coronavirus PandemicQuarles & Brady
With the enactment of two new Coronavirus-related laws, plan sponsors of retirement, health and welfare plans have several "must-do" items to consider, along with several "optional" items. Join us for this informative webinar where we will discuss the different legal considerations plan sponsors and service providers (such as third party administrators, insurance brokers and pharmacy benefit mangers) should consider for their retirement, health and welfare plans.
We will discuss:
-What coronavirus testing must be covered by health plans
Important changes to "over the counter" drugs and medicine
-Addressing layoffs and furloughs, and how to survive the benefit costs
-Best practices for distribution and loan options for those who have been affected
-Delaying, repaying and fixing 2020 required minimum distributions
-How to treat paid leave under your retirement plans
Guidance for Employers During the Evolving COVID-19 PandemicQuarles & Brady
As the impact of the COVID-19 pandemic continues to rapidly evolve, U.S. employers are wrestling with many workforce issues to ensure workforce safety and mitigate operational disruptions. Our discussion will present key considerations for employers relating to employee workplace safety, implementing policies and procedures for working remotely, handling issues of paid and unpaid leave for employees or family member care, as well as addressing travel restrictions, all within the context of FMLA, EEOC, wage and hour and other legal guidelines. A question and answer period will follow the presentation.
Guidance for Employers During the Evolving COVID-19 PandemicQuarles & Brady
As the impact of the COVID-19 pandemic continues to rapidly evolve, U.S. employers are wrestling with many workforce issues to ensure workforce safety and mitigate operational disruptions. Our discussion will present key considerations for employers relating to employee workplace safety, implementing policies and procedures for working remotely, handling issues of paid and unpaid leave for employees or family member care, as well as addressing travel restrictions, all within the context of FMLA, EEOC, wage and hour and other legal guidelines. A question and answer period will follow the presentation.
Business Law Training: Market Turmoil in D&O Insurance and Is Your Company Pr...Quarles & Brady
This lively discussion focused on the market turmoil in the current public and private D&O markets. Additionally, the professionals explained the scope of Cyber Insurance for tradition exposures, operational risk and regulatory compliance.
Understand the SECURE Act, the Repeal of the “Cadillac Tax” and Other Health ...Quarles & Brady
After stalling in the Senate for much of 2019, the long expected passage of the SECURE Act became a reality through a quiet attachment to the approved year-end spending bill. This session covered the Act's impact on important aspects of your benefit plans, along with the repeal of the so-called "Cadillac Tax" and other benefit changes included in the spending bill. Attendees were able to gain the information needed to comply with this newly passed legislation and ways to adapt their benefits to take full advantage of the law. We presented the formal legal changes as well as our perspectives on what compliance means on a practical level. Time for Q&A was planned near the end of the session.
There is a patchwork of medical and recreational marijuana laws across the country with more changes on the horizon. Multi-state employers need to account for the legal differences by state and train their employees accordingly for handling medical marijuana issues in the workplace. The session will also discuss the current status of the legalization of recreational marijuana and what is likely coming. Now is the time for employers to evaluate their policies and procedures, not only in light of the law but practical realities as well.
NATURE, ORIGIN AND DEVELOPMENT OF INTERNATIONAL LAW.pptxanvithaav
These slides helps the student of international law to understand what is the nature of international law? and how international law was originated and developed?.
The slides was well structured along with the highlighted points for better understanding .
ALL EYES ON RAFAH BUT WHY Explain more.pdf46adnanshahzad
All eyes on Rafah: But why?. The Rafah border crossing, a crucial point between Egypt and the Gaza Strip, often finds itself at the center of global attention. As we explore the significance of Rafah, we’ll uncover why all eyes are on Rafah and the complexities surrounding this pivotal region.
INTRODUCTION
What makes Rafah so significant that it captures global attention? The phrase ‘All eyes are on Rafah’ resonates not just with those in the region but with people worldwide who recognize its strategic, humanitarian, and political importance. In this guide, we will delve into the factors that make Rafah a focal point for international interest, examining its historical context, humanitarian challenges, and political dimensions.
How to Obtain Permanent Residency in the NetherlandsBridgeWest.eu
You can rely on our assistance if you are ready to apply for permanent residency. Find out more at: https://immigration-netherlands.com/obtain-a-permanent-residence-permit-in-the-netherlands/.
ASHWINI KUMAR UPADHYAY v/s Union of India.pptxshweeta209
transfer of the P.I.L filed by lawyer Ashwini Kumar Upadhyay in Delhi High Court to Supreme Court.
on the issue of UNIFORM MARRIAGE AGE of men and women.
Military Commissions details LtCol Thomas Jasper as Detailed Defense CounselThomas (Tom) Jasper
Military Commissions Trial Judiciary, Guantanamo Bay, Cuba. Notice of the Chief Defense Counsel's detailing of LtCol Thomas F. Jasper, Jr. USMC, as Detailed Defense Counsel for Abd Al Hadi Al-Iraqi on 6 August 2014 in the case of United States v. Hadi al Iraqi (10026)
WINDING UP of COMPANY, Modes of DissolutionKHURRAMWALI
Winding up, also known as liquidation, refers to the legal and financial process of dissolving a company. It involves ceasing operations, selling assets, settling debts, and ultimately removing the company from the official business registry.
Here's a breakdown of the key aspects of winding up:
Reasons for Winding Up:
Insolvency: This is the most common reason, where the company cannot pay its debts. Creditors may initiate a compulsory winding up to recover their dues.
Voluntary Closure: The owners may decide to close the company due to reasons like reaching business goals, facing losses, or merging with another company.
Deadlock: If shareholders or directors cannot agree on how to run the company, a court may order a winding up.
Types of Winding Up:
Voluntary Winding Up: This is initiated by the company's shareholders through a resolution passed by a majority vote. There are two main types:
Members' Voluntary Winding Up: The company is solvent (has enough assets to pay off its debts) and shareholders will receive any remaining assets after debts are settled.
Creditors' Voluntary Winding Up: The company is insolvent and creditors will be prioritized in receiving payment from the sale of assets.
Compulsory Winding Up: This is initiated by a court order, typically at the request of creditors, government agencies, or even by the company itself if it's insolvent.
Process of Winding Up:
Appointment of Liquidator: A qualified professional is appointed to oversee the winding-up process. They are responsible for selling assets, paying off debts, and distributing any remaining funds.
Cease Trading: The company stops its regular business operations.
Notification of Creditors: Creditors are informed about the winding up and invited to submit their claims.
Sale of Assets: The company's assets are sold to generate cash to pay off creditors.
Payment of Debts: Creditors are paid according to a set order of priority, with secured creditors receiving payment before unsecured creditors.
Distribution to Shareholders: If there are any remaining funds after all debts are settled, they are distributed to shareholders according to their ownership stake.
Dissolution: Once all claims are settled and distributions made, the company is officially dissolved and removed from the business register.
Impact of Winding Up:
Employees: Employees will likely lose their jobs during the winding-up process.
Creditors: Creditors may not recover their debts in full, especially if the company is insolvent.
Shareholders: Shareholders may not receive any payout if the company's debts exceed its assets.
Winding up is a complex legal and financial process that can have significant consequences for all parties involved. It's important to seek professional legal and financial advice when considering winding up a company.
PRECEDENT AS A SOURCE OF LAW (SAIF JAVED).pptxOmGod1
Precedent, or stare decisis, is a cornerstone of common law systems where past judicial decisions guide future cases, ensuring consistency and predictability in the legal system. Binding precedents from higher courts must be followed by lower courts, while persuasive precedents may influence but are not obligatory. This principle promotes fairness and efficiency, allowing for the evolution of the law as higher courts can overrule outdated decisions. Despite criticisms of rigidity and complexity, precedent ensures similar cases are treated alike, balancing stability with flexibility in judicial decision-making.
Responsibilities of the office bearers while registering multi-state cooperat...Finlaw Consultancy Pvt Ltd
Introduction-
The process of register multi-state cooperative society in India is governed by the Multi-State Co-operative Societies Act, 2002. This process requires the office bearers to undertake several crucial responsibilities to ensure compliance with legal and regulatory frameworks. The key office bearers typically include the President, Secretary, and Treasurer, along with other elected members of the managing committee. Their responsibilities encompass administrative, legal, and financial duties essential for the successful registration and operation of the society.
A "File Trademark" is a legal term referring to the registration of a unique symbol, logo, or name used to identify and distinguish products or services. This process provides legal protection, granting exclusive rights to the trademark owner, and helps prevent unauthorized use by competitors.
Visit Now: https://www.tumblr.com/trademark-quick/751620857551634432/ensure-legal-protection-file-your-trademark-with?source=share
RIGHTS OF VICTIM EDITED PRESENTATION(SAIF JAVED).pptxOmGod1
Victims of crime have a range of rights designed to ensure their protection, support, and participation in the justice system. These rights include the right to be treated with dignity and respect, the right to be informed about the progress of their case, and the right to be heard during legal proceedings. Victims are entitled to protection from intimidation and harm, access to support services such as counseling and medical care, and the right to restitution from the offender. Additionally, many jurisdictions provide victims with the right to participate in parole hearings and the right to privacy to protect their personal information from public disclosure. These rights aim to acknowledge the impact of crime on victims and to provide them with the necessary resources and involvement in the judicial process.
RIGHTS OF VICTIM EDITED PRESENTATION(SAIF JAVED).pptx
Interest Rate Swaps for Borrower’s Counsel
1. www.ambar.org/rpte
Interest Rate Swaps for Borrower’s Counsel
May 11, 2016 | 1:00 PM Eastern
Sponsored By
The ABA Section of Real Property, Trust & Estate Law
Co-Sponsored By
The ABA Business Law Section
Eric Berman
Practical Law Company
New York, NY
David Sprentall
Snell & Wilmer LLP
Phoenix, AZ
Anthony Marino
Quarles & Brady LLP
Milwaukee, WI
Bart Wall
Bryan Cave
St. Louis, MO
3. www.ambar.org/rpte |
BIOS
• Eric Berman
Eric Berman has been Senior Legal Editor at Practical Law Finance for seven years, where he creates
legal know-how resources and provides detailed analysis of legal and regulatory developments in the
areas of Swaps & Derivatives and Securitization/Structured Finance. Eric came to Practical Law from the
New York office of Sidley Austin LLP where he worked on the Derivatives team in the Corporate Finance
group on a wide range of derivatives and structured finance matters including representation of banks
and funds in ISDA negotiation for CDS, interest rate swaps, and other derivatives transactions, as well as
representation of a variety of parties in interest in CLO, MBS, ABS, and other securitization transactions.
Prior to Sidley, Eric practiced in the areas of bankruptcy, commercial lending, securitization, repos,
securities lending and other types of financial transactions. Eric represented a number of Enron
derivatives counterparties in Enron bankruptcy cases and prepared Enron North America (ENA)
Examiner's report on Enron off-balance-sheet structured finance activity and related accounting fraud.
• Anthony Marino
Tony Marino is a partner in the Milwaukee office of Quarles & Brady LLP. He has extensive experience
representing both end-users and financial institutions in negotiating and documenting all aspects of
derivative transactions. He routinely represents lenders and borrowers in negotiating and documenting
secured and unsecured financing transactions of all types and sizes, including single bank and
syndicated commercial loans, asset-based financings, asset securitizations, equipment leasing,
mezzanine debt financings, New Market Tax Credit financings, construction loans, private placements,
revenue bond credit enhancements and direct purchases, and workouts.
4. www.ambar.org/rpte |
BIOS (cont.)
• David Sprentall
Dave Sprentall is a partner in the Phoenix office of Snell & Wilmer. He primarily
represents banks and other institutional lenders in term, construction and
development financings, including syndicated debt and senior/mezzanine
structures. He also represents lenders in connection with loans to public and
private homebuilders, subscription financing and land banking transactions.
• Bart Wall
Bart Wall is a partner in the St. Louis office of Bryan Cave LLP. Mr. Wall’s
practice concentrates on advising corporate end-users in a variety of
transactions to hedge currency, commodity, interest rate and credit risk through
swaps and derivative products. He also represents domestic and international
financial institutions, private equity firms, small business investment companies
and other investors in working capital and fixed asset financings, leveraged
acquisition and mezzanine financings, letter of credit facilities, and receivable
securitization transactions.
5. www.ambar.org/rpte |
OVERVIEW
• 1. ISDA document structure and key points
• 2. Regulation of swaps – new developments
• 3. SWAP provisions in loan documents
6. www.ambar.org/rpte |
HYPOTHETICAL
• Your client, High Hopes Development LLC, develops multi-tenant
office projects. High Hopes is obtaining a construction/mini-perm
loan for a new building. The loan will be made by Bank A and two
other banks under a typical co-lending arrangement.
• The loan will have an 18-month construction period followed by a
two year interest-only period in order for the occupancy to stabilize
and for the borrower to obtain permanent financing. The interest
rate on the loan will be 30-day LIBOR plus 200 basis points
changing on the first day of each month.
• Your client is concerned that interest rates could rise during the term
of the loan which could require more equity or mean that the rental
income would make it more difficult to service the loan. Bank A has
suggested that an interest rate swap might help address High
Hope’s concerns.
7. www.ambar.org/rpte |
TERMINOLOGY
• Interest Rate Swap. Borrower and the
counterparty agree to “exchange” cash flows.
Borrower pays at a fixed rate while the
counterparty pays at a variable rate based on the
notional amount. Payments would be “netted”.
• Notional Amount. This is the “hypothetical”
principal amount of the hedging transaction used
for the purpose of making calculations under the
swap.
• Counterparty. Refers to the other party to the
transaction.
8. www.ambar.org/rpte |
TERMINOLOGY (cont.)
• Interest Rate Cap. A cap simply provides that if
the variable rate on the loan exceeds a certain
rate (the “cap”), the counterparty will pay the
excess. Operates like an insurance policy and
carries with it an upfront or monthly cost.
• Interest Rate Collar. Like a cap but provides a
ceiling and a floor. If the loan’s variable interest
rate goes over the cap the counterparty pays and
if it drops below the floor the borrower pays.
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MASTER AGREEMENT STRUCTURE
Master Agreement
• Contains basic representations,
covenants and events of default
• Methodology for terminating all
transactions and calculating a
final settlement amount
• Any elections, changes and
additions to standard provisions
are included in Schedule
• Incorporates confirmations by
reference
Credit Support Documents
Guarantees
Credit Support Annex
Other collateral documents
Confirmations
• Specifies economic terms of the
swap
• Includes changes to standard
master agreement terms
• Incorporates definitions by
reference
Definitions
Standard definitions
for each product type
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SWAP DOCUMENTATION
• Master Agreement
- Preprinted form
- Generic framework for the parties’ relationship
• Schedule to Master Agreement
- Includes negotiated modifications
- Supplements the Master Agreement
• Confirmation
- Business terms of a specific transaction
- Incorporations standard definitions
- Allows for efficient trading and documentation
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SWAP DOCUMENTATION (cont.)
• Credit Support Documents
- Guarantees
- Security agreements
- Mortgages
• Credit Support Annex
- Optional preprinted form
- Negotiate modifications in paragraph 13
- Primarily used to deliver cash or securities
collateral
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MASTER AGREEMENT
• 1992 or 2002 Version
- Preprinted forms
- Elections and negotiated terms are in the Schedule
• Differences Between Versions
- Close-out: market quotations/loss v. close-out
amount
- Events of default
o 1992 cure periods are more generous
o 2002 includes force majeure termination
event
- 2002 includes set-off provision
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COMPARISON OF DEFAULT
CURE PERIODS
Event of Default 1992 Master Agreement 2002 Master Agreement
Failure to make a payment 3 Local Business Days after
notice
1 Local Business Day after
notice
Failure to make a delivery 3 Local Business Days after
notice
1 Local Delivery Day after notice
Other breaches of master
agreement
30 days after notice 30 days after notice
Involuntary bankruptcy 30 days 15 days
Enforcement action by a
secured party to take
possession of all or substantially
all of party’s assets
30 days 15 days
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ISSUES TO NEGOTIATE
• Credit Support (what is the collateral?)
• Specified Entities
• Cross Default / Cross Acceleration
• Additional Termination Events
• Credit Event Upon Merger
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SPECIFIED ENTITY
• Third parties which are subject to certain provisions of
the Agreement
o Default under Specified Transactions
o Cross Default
o Bankruptcy Default
o Credit Event upon Merger
o Absence of Litigation Representation
• Bank perspective: as broad as possible (“all Affiliates”)
• Borrower perspective: no more restrictive than loan
agreement
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AFFILIATES
• Standard definition of "Affiliate" includes:
o Subsidiaries: any entity controlled, directly or indirectly, by a
party
o Parent companies: any entity that controls, directly or indirectly,
the party
o Sister companies: any entity directly or indirectly under common
control with the party.
• “Control” means ownership of a majority of the voting power of the
entity or person.
• Some banks like to name “All affiliates” as Specified Entities
• Borrowers should consider potential consequences (for example,
should a bankruptcy of a sister company trigger an ATE?)
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CROSS DEFAULT
• Event of Default if a party defaults on third party
obligation for borrowed money in excess of a threshold
amount
• Negotiation Points
- Change to cross-acceleration
- Exception for administrative errors
- Expansion to include other financial obligations
- Threshold amount
- Specified Entity (will be subject to the cross default
provision)
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ADDITIONAL TERMINATION EVENTS
• If an ATE occurs, a party may have the right to terminate
• Examples:
- Optional early termination at election of borrower
- A default under the loan documents
- The loan is prepaid and the loan documents are
terminated
- The lender no longer has commitments under the
loan agreement (could result from sale of loan)
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ADDITIONAL TERMINATION
EVENTS (cont.)
Additional Examples:
- Decline of credit ratings
- Financial covenants
- Granting of a lien in favor of other creditors that does
not secure the swap on a pari passu basis
- Partial termination if amortizing loan is partially repaid
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CREDIT EVENT UPON MERGER
1992 CEUM
May apply to a party if:
• Merger
• Transfer of substantially
all its assets
2002 CEUM
May apply to a party if:
• Merger or consolidation
• Any substantial part of its assets
comprising the business as of the
agreement date
• Reorganization or reincorporation
• Acquisition of control by another
person or group
• Substantial change in capital
structure (issuance of debt,
convertible securities or preferred
stock)
Note: CEUM also requires a deterioration of credit following the triggering
event.
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TERMINATION
• Under 1992 Master Agreement, parties elect either “Market Quotation” or
“Loss”
- Market Quotation: based on (i) average of two middle bids
obtained from 4 reference market makers or (ii) the middle
bid of 3 bids so obtained
- Loss: cost of unwinding hedges related to the terminated
transactions (more subjective determination)
• 2002 Master Agreement adopts single damages measurement defined as
the “Close-out Amount”
- Requires a good faith determination, using commercially reasonable
procedures, of the losses or gains that are or would be realized in
providing for the economic equivalent of the material terms of and
option rights of the parties under the terminated transactions
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REGULATION
OVERVIEW OF SWAPS REGULATION:
THE DODD-FRANK ACT
• In 2010 President Obama signed into law the Dodd-
Frank Wall Street Reform and Consumer Protection
Act of 2010 – known as the Dodd-Frank Act.
• Designed to curtail systemic risk in the banking and
financial system.
• Cornerstone of this legislation is regulation of the
swaps market – Title VII.
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REGULATION (cont.)
OVERVIEW OF SWAPS REGULATION:
THE DODD-FRANK ACT
Main areas of interest rate swaps regulation under
Title VII:
• Clearing and exchange trading (“trade
execution”).
• Data reporting.
• Margin rules for uncleared swaps.
• Rules for swap dealers (and MSPs).
• Eligible contract participant (ECP) requirement.
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REGULATION (cont.)
OVERVIEW OF SWAPS REGULATION:
THE DODD-FRANK ACT
• Title VII mechanics:
• The CFTC regulates non-security-based swaps
(known simply as “swaps”).
• The SEC regulates security-based swaps (SBS).
• Interest rate swaps are non-security-based swaps
(“swaps”) under Title VII and are therefore generally
regulated under CFTC rulemaking.
• For details on swaps vs. SBS under Title VII, see http://us.practicallaw.com/3-502-
8950?q=3-502-8950#a477834: Types of Swaps under Title VII.
26. www.ambar.org/rpte |
REGULATION (cont.)
DODD-FRANK ACT: SWAP CLEARING
• Under Section 723(a)(3) of the Dodd-Frank Act,
which added new Section 2(h) to the Commodity
Exchange Act (CEA), all swaps for which a
Clearing Determination has been issued by the
CFTC must be cleared by a CFTC-registered
Derivatives Clearing Organization (DCO) –
CME, ICE, LCH, etc.
• If a trade is req'd to be cleared and may not be
cleared or is rejected for clearing, it is void ab
initio and unlawful to enter into.
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REGULATION (cont.)
What is “Clearing”?
• Non-cleared transactions are bilateral – that is,
entered into by two parties.
• In a cleared trade, the clearinghouse inserts
itself into the middle of the transaction,
“guarantying” the performance of both parties.
• Eliminates counterparty risk.
• BUT: does not eliminate systemic risk
(performance only guaranteed to the extent of
clearinghouse resources).
29. www.ambar.org/rpte |
REGULATION (cont.)
DODD-FRANK ACT: SWAP CLEARING
On November 28, 2012, the CFTC issued its first
and only final Clearing Determination to date. It
covers many common types of:
• Credit default swaps (CDS).
• Interest rate swaps (IRS).
This includes most plain vanilla fixed-for-floating
US dollar IRS, as are entered into in connection
with real estate and other commercial lending
transactions.
30. www.ambar.org/rpte |
REGULATION (cont.)
Specification Fixed-to-Floating Interest Rate Swap Class
1. Currency US Dollar (USD) Euro (EUR) Sterling (GBP) Yen (JPY) US Dollar (USD)
2. Floating Rate Indexes LIBOR EURIBOR LIBOR LIBOR LIBOR
3. Stated Termination
Date Range
28 days to 50
years
28 days to 50
years
28 days to 50
years
28 days to 30
years
28 days to 50
years
4. Optionality No No No No No
5. Dual Currencies No No No No No
6. Conditional Notional
Amounts
No No No No No
CFTC Interest Rate Swap Clearing Determination
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REGULATION (cont.)
DODD-FRANK ACT: SWAP CLEARING
• These transactions, therefore, must be cleared
through a registered DCO unless an exception or
exemption is available (more on this to come...).
• Furthermore: Under the mandatory Title VII trade-
execution requirement set out in Section 2(h)(8) of
the CEA, all swaps that are approved for clearing
must be entered into on a registered DCM or SEF,
unless no registered exchange accepts the swap for
trading (7 U.S.C.A. § 2(h)(8)).
32. www.ambar.org/rpte |
REGULATION (cont.)
DODD-FRANK ACT: SWAP CLEARING
Commercial End-User Clearing Exception: Section
2(h)(7)(A) of the CEA, as amended by Section 723(h)(7)(A)
of the Dodd-Frank Act and Part 50 of CFTC Regulations.
Available for swaps where at least one party to the
transaction:
• Is either:
– Not a "financial entity"; or
– An exempt financial entity; and
• Is using the swap to "hedge or mitigate commercial risk."
• Notifies the CFTC how it generally meets its financial obligations associated with
entering into uncleared swaps.
33. www.ambar.org/rpte |
REGULATION (cont.)
DODD-FRANK ACT: SWAP CLEARING
“Financial Entity” Definition: Section 2(h)(7)(C)(i) of the
CEA provides a definition of “financial entity” that includes
the following types of entities:
• Swap dealers and security-based swap dealers;
• Major swap participants and major security-based swap
participants;
• Commodity pools;
• Private funds, as defined in Section 202(a) of the
Investment Advisers Act of 1940;
• Employee benefit plans as defined under ERISA; OR….
34. www.ambar.org/rpte |
REGULATION (cont.)
DODD-FRANK ACT: SWAP CLEARING
“Financial Entity” Definition (cont’d):
• (VIII) a person predominantly engaged in activities
that are in the business of banking, or in activities
that are financial in nature, as defined in section
1843(k) of Title 12.
• Small bank exclusion ($10B) – CTFC Regulation
50.50(d).
– BUT: not applicable where bank not hedging
commercial risk.
35. www.ambar.org/rpte |
REGULATION (cont.)
DODD-FRANK ACT: SWAP CLEARING
Hedge or mitigate commercial risk:
Under CFTC Regulation 50.50(c), a swap is used to hedge or mitigate
commercial risk if the swap is:
• Not used for a purpose that is in the nature of speculation, investing,
or trading;
• Not used to hedge or mitigate the risk of another swap or SBS
position, unless that other position itself is used to hedge or mitigate
commercial risk; and
• Economically appropriate to the reduction of risks in the conduct and
management of a commercial enterprise, where the risks arise from
any fluctuation in interest, currency, or foreign exchange rate
exposures arising from a person’s current or anticipated assets or
liabilities.
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REGULATION (cont.)
DODD-FRANK ACT: SWAP CLEARING
Making the election and reporting obligations for
the Clearing Exception
The parties to the swap elect to make use of the exception by having the
reporting party report the following information to a swap data repository (SDR),
or if no SDR is available, to the CFTC:
• Notice of election to use the end-user exception.
• The identity of the counterparty that is eligible to elect the end-user
exception.
There is no prescribed form for this notice – for onboarding, see:
• DTCC: DDR-Onboarding@dtcc.com
• ABA: regreformtracker.aba.com/2013/08/swaps-end-user-reporting.html
Note that Under CFTC Regulation 23.505, documentation must be furnished to SDs and MSPs by non-financial entity
swap counterparties claiming the exception from the mandatory swap clearing requirement sufficient to provide a
reasonable basis on which to believe that its counterparty meets the statutory conditions required for an exception from
the clearing requirement.
37. www.ambar.org/rpte |
REGULATION (cont.)
DODD-FRANK ACT: SWAP CLEARING
Making the election and reporting obligations for
the Clearing Exception (cont’d)
The following information must be provided to the CFTC either in an annual filing by the
electing counterparty or on a swap-by-swap basis by the reporting counterparty:
• Whether the electing counterparty is either:
– a financial entity acting as an affiliate of a non-financial entity; or
– a small financial institution.
• Whether the swap for which the exception is being elected is being used to hedge or
mitigate commercial risk.
• Information regarding how the electing counterparty generally meets its financial
obligations associated with entering into uncleared swaps.
• If the electing counterparty is an SEC filer, whether its board of directors has
approved generally the decision to enter into swaps that are excepted from Title VII
clearing and exchange-trading requirements.
38. www.ambar.org/rpte |
REGULATION (cont.)
THE DODD-FRANK ACT: DATA REPORTING
Overview: Data Reporting for Interest Rate Swaps
CFTC Dodd-Frank swap data reporting rules:
• Part 43: Real-time public data reporting. Reporting of swap data
is required only at the inception of the swap. Data fields in Appendix
A of the final rules. Data must be reported as soon as
technologically practicable upon the creation of the swap.
• Part 45: “SDR” swap data reporting and recordkeeping. Data
reporting under Part 45 is regulatory reporting. This data is not
publicly disseminated but is submitted to the CFTC.
• Part 46: Historical swap data reporting and recordkeeping. For
swaps entered into before enactment date of Dodd-Frank Act or
compliance date for SDR rules.
39. www.ambar.org/rpte |
REGULATION (cont.)
THE DODD-FRANK ACT: DATA REPORTING
Reporting Party
The Reporting Party is the party to the swap that is
responsible for reporting data electronically to a registered
Swap Data Repository (SDR):
• The data that must be reported under CFTC swap data
reporting rules – Parts 43, 45 and 46.
• The required information regarding the election of the
commercial end-user clearing exception.
• Note that the reporting party is also usually the party
responsible for recordkeeping under Part 45 rules.
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REGULATION (cont.)
THE DODD-FRANK ACT: DATA REPORTING
CFTC Reporting Hierarchy:
Which is the Reporting Party?
• If one of the parties to the swap is a swap dealer or MSP, the SD/MSP is responsible
for fulfilling the parties' reporting obligations.
• If one of the parties to the swap is a swap dealer and the other is an MSP, the SD is
responsible for fulfilling the parties' reporting obligations.
• If neither of the parties to the swap is a swap dealer or MSP, but one party is a
"financial entity" as defined under CEA Section 2(h)(7), the financial entity is
responsible for fulfilling the parties' reporting obligations.
• If both parties are swap dealers, both parties are MSPs or both parties are non-
SD/MSP counterparties, then the parties must designate among themselves which of
them is to be the reporting party unless only one of the parties is a US person, in
which case the US person is to be the reporting party.
• DCO reports for cleared swaps.
Hierarchy applicable for all CFTC swap data reporting rules.
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REGULATION (cont.)
THE DODD-FRANK ACT: DATA REPORTING
CFTC Swap Data Reporting: Part 45
Under Part 45 of the CFTC’s regulations (“SDR”
rules), reporting of swap data is required:
• At the inception of the swap (Creation Data).
• During the life of the swap until expiration or
termination (Continuation Data).
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REGULATION (cont.)
THE DODD-FRANK ACT: DATA REPORTING
CFTC Swap Data Reporting: Part 45
Creation Data
For swaps that are not executed on a SEF or DCM nor cleared through a DCO, under the final SDR rules, the
reporting party to a swap entered into with a US person must submit to an SDR that accepts data for that
asset class of swap the following creation data and reports
• Confirmation data. The swap transaction confirmation terms that the reporting counterparty has
recorded.
• Minimum PET data. The minimum primary asset-class specific economic terms (interest rate, FX, credit,
equity and other commodity), which may or may not be contained in the transaction confirmation. These
reports may be found for each asset class in Appendix 1 to the final SDR rules. (Note: Not aligned with
Part 43 reports.)
• Internal identifiers. The internal counterparty identifier, internal transaction identifier and the internal
master agreement identifier used by the automated systems of the reporting party.
• USI. The unique swap identifier (USI) for the swap.
• LEI. The counterparty's legal entity identifier (LEI). You will need LEI to enter into a swap. Parties may
apply for an LEI at the Global Markets Entity Identifier (GMEI) Utility at https://www.gmeiutility.org.
For “off-facility” swaps not subject to mandatory clearing, this data must be submitted no later than 30 minutes
after execution for credit, equity, foreign exchange, and interest rate swaps, if the non-reporting
counterparty is a non-SD/MSP counterparty that is not a financial entity
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REGULATION (cont.)
THE DODD-FRANK ACT: DATA REPORTING
CFTC Swap Data Reporting: Part 45
Continuation Data: Life-cycle approach.
The life-cycle approach calls for reporting life-cycle events, meaning
any event resulting in a change to data previously reported in
connection with the swap
This includes:
• Assignment, transfer, conveyance, or novation.
• Partial or full termination of the swap.
• Change in the cash flows originally reported.
• Amendment.
• Exchange or extinguishing of rights or obligations under the swap.
• Corporate events.
44. www.ambar.org/rpte |
REGULATION (cont.)
THE DODD-FRANK ACT: DATA REPORTING
CFTC Swap Data Reporting: Part 45
Continuation Data: Life-cycle approach
Under CFTC Regulation 45.4(c), if the reporting counterparty is a
non-SD/MSP counterparty:
- Life-cycle event data must be reported no later than the end
of the first business day following the date of any life-cycle
event.
- Except that: life-cycle event data relating to a corporate event
of the non-reporting counterparty must be reported no later
than the end of the second business day following such event.
45. www.ambar.org/rpte |
REGULATION (cont.)
THE DODD-FRANK ACT: DATA REPORTING
CFTC Swap Data Reporting: Part 45
Continuation Data: “Corporate Event”
• The term "corporate event" is not defined in the final SDR data reporting rules, nor in
the CEA or CFTC regulations.
• Because there is no definition, the provision leaves it up to the party to determine
whether an even should be reported.
• Implied in the rules that this relates to M&A activity, such as a merger or succession
event involving a party to the swap.
– This activity has implications for legal entity identifiers (LEIs) and other data. May
impact entity status (swap dealer, financial entity, etc.), as well as jurisdiction (US
person) and other factors.
• A party need not disclose material non-public information in undertaking this
obligation.
• “Counterparties should use due diligence to ensure that the non-reporting counterparty notifies the
reporting counterparty promptly of the non-reporting counterparty’s corporate events affecting any
primary economic term of the swap.” (see Amendment to Covered Agreement – Section 4.03)
46. www.ambar.org/rpte |
REGULATION (cont.)
THE DODD-FRANK ACT: DATA REPORTING
CFTC Data Reporting: Duties of Non-Reporting Party
The non-reporting party still has reporting responsibilities:
• Clearing exception: Reporting requirements in
connection with election of the clearing exception.
• Creation data: Under Part 45, the non-reporting
counterparty must provide any required information in
the PET report (LEI, etc.).
• Continuation data: Under Part 45, the non-reporting
counterparty must timely provide information and data to
the reporting counterparty on any “corporate event” that
occurs with respect to itself.
47. www.ambar.org/rpte |
REGULATION (cont.)
THE DODD-FRANK ACT: NON-CLEARED MARGIN
Q: Which rules apply?
- Bank margin rules?
- CFTC margin rules?
These rules only apply to swap dealers and MSPs.
A: Unless one of the parties to a swap is a SD, MSP, SBSD
or MSBSP, parties may continue to negotiate their
collateral arrangements using the ISDA Credit Support
Annex (CSA), without regulatory interference.
• Even with a swap dealer or MSP counterparty: Both
rules include non-financial end-user exclusions.
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REGULATION (cont.)
THE DODD-FRANK ACT: ECP REQUIREMENT
• Section 723(a)(2) of the Dodd-Frank Act
amended CEA section 2(e) to provide that “it
shall be unlawful for any person other than an
'eligible contract participant' to enter into a swap
unless the swap is entered into on, or subject to
the rules of, a board of trade designated as a
contract market [DCM] under Section 5 of the
CEA.“
– Swaps conducted on a DCM are subject to a host of protective rules and
regulations making it less necessary, from the perspective of swap regulators, for
the parties to have high net worth.
49. www.ambar.org/rpte |
REGULATION (cont.)
THE DODD-FRANK ACT: ECP REQUIREMENT
• Both parties must be ECP when the swap is
entered into (if swap is “off-facility”).
– NOT an ongoing obligation.
• Parties must represent to one another that they
are ECPs
– See Amendment to Covered Agreement – Section
3.02
• When entering into a swap with a swap dealer (or MSP),
this is covered by the ISDA Dodd-Frank Protocol
Questionnaire – incorporated into the ISDA Master by
reference.
50. www.ambar.org/rpte |
REGULATION (cont.)
THE DODD-FRANK ACT: ECP REQUIREMENT
• “Swap” Definition: Section 721(a) of the Dodd-Frank
Act defines the term "swap" by adding Section
1a(47) to the CEA (7 U.S.C. § 1a(47)) – August 2012.
• CFTC No-Action Letter 12-17 clarifies that swap
guarantors and pledgors must be Eligible
Contract Participants.
– In No-Action Letter 12-17, issued on October 12, 2012, the CFTC
clarified its view that the definition of the term "swap" included any
guaranty of a swap and pledges of assets used to secure swap
obligations.
– As a result, each guarantor and pledgor must be ECP at execution
or it may not provide credit support for a swap.
51. www.ambar.org/rpte |
REGULATION (cont.)
THE DODD-FRANK ACT: ECP REQUIREMENT
Consequences of ECP Failure:
• The guaranties made under or in connection with a loan
agreement are unenforceable to the extent the
guaranteed obligations include swap obligations
guaranteed by, or supported by pledge of assets by,
non-ECP borrower subsidiaries (or other parties).
• This is the case even where the direct swap
counterparties are ECPs.
• Further, because loan guaranties are rarely severable,
there is a risk that the entire loan guaranty could be
rendered unenforceable.
52. www.ambar.org/rpte |
REGULATION (cont.)
THE DODD-FRANK ACT: ECP REQUIREMENT
ECP Definition: CEA section 1a(18)
• Swap dealers, MSPs, SBSDs, MSBSPs.
• Corporations, partnerships, proprietorships, organizations, trusts, or other entities with more than $10 million in assets, or any entity
guaranteed by such entity.
• Individuals with aggregate amounts of more than $10 million invested on a discretionary basis (or $5 million if hedging).
• Entities with a net worth of at least $1 million that are hedging commercial risk.
• Financial institutions.
• Insurance companies.
• Investment companies subject to regulation under the Investment Company act of 1940 (and similar foreign entities subject to similar
foreign regulation).
• Commodity pools with more than $5 million in assets under management (AUM).
• Employee benefit plans subject to ERISA with total assets exceeding $5 million or whose investment decisions are made by a registered
commodity pool advisor (CPO) or commodity trading advisor (CTA) subject to regulation under the Investment Advisers Act of 1940, or by
a financial institution or insurance company.
• Governmental entities (including the US, a state or a foreign government).
• Brokers and dealers subject to regulation under the Securities Exchange act of 1934 (Exchange Act) and similarly regulated foreign
entities. If the broker or dealer is an individual it must have discretionary investments of greater than $10 million.
• Futures commission merchants (FCMs) and similarly regulated foreign entities, except that if the FCM is an individual it must have
discretionary investments of greater than $10 million.
• Any entity that:
– is owned entirely by ECPs;
– where the entity and its owners have an aggregate of at least $1 million in net worth;
– is entering into an interest rate, FX or commodity derivative to hedge a commercial risk.
53. www.ambar.org/rpte |
REGULATION (cont.)
THE DODD-FRANK ACT: ECP REQUIREMENT
ECP Definition: CEA section 1a(18)
The ECP definition provides several alternatives for meeting the
test. Only one prong of the definition must be met for a party to
qualify as an ECP.
The alternative most likely to be relevant for loan parties in
secured lending transactions found in CEA section 1a(18)(v)(III):
• "(v) a corporation, partnership, proprietorship, organization, trust, or other
entity — (III) that: (aa) has a net worth exceeding $1,000,000; and (bb)
enters into an agreement, contract, or transaction in connection with the
conduct of the entity's business or to manage the risk associated with an
asset or liability owned or incurred or reasonably likely to be owned or
incurred by the entity in the conduct of the entity's business[.]" (7 U.S.C. §
1a(18)(v)).
54. www.ambar.org/rpte |
REGULATION (cont.)
THE DODD-FRANK ACT: ECP REQUIREMENT
ECP solutions: Keepwell cure
• ECP definition 1a(18)(v)(II):
– "(v) a corporation, partnership, proprietorship,
organization, trust, or other entity — (I) that has total
assets exceeding $10,000,000; [or] (II) the obligations of
which under an agreement, contract, or transaction are
guaranteed or otherwise supported by a letter of credit or
keepwell, support, or other agreement by an entity
described in subclause (I), …;
55. www.ambar.org/rpte |
REGULATION (cont.)
THE DODD-FRANK ACT: ECP REQUIREMENT
ECP solutions: Carve out
• Carve-out language: Carves out obligations under the
borrower's (or any other party's) swaps from the basket of
guaranteed obligations under the loan documents.
– LSTA market advisory (Feb. 2013): recommended that the
defined term or terms used in the guaranty or security agreement
to identify the obligations guaranteed or secured (typically terms
like "Obligations" or "Guaranteed Obligations" and "Secured
Obligations") specifically exclude all “Excluded Swap
Obligations.” Definition of that term provided. (Sample language
in materials.)
– ISDA also has published similar carve-out language to
address the ECP issue, as well as keepwell language.
57. www.ambar.org/rpte |
SECURING SWAPS (cont.)
ALTA 29:
• 1. The insurance provided by this endorsement is subject to the
exclusions in Section 3 of this endorsement, the Exclusions from Coverage
in the Policy, the Exceptions from Coverage contained in Schedule B, and
the Conditions. As used in this endorsement:
– a. The “Date of Endorsement” is _____________________; and
– b. “Swap Obligation” means a monetary obligation under the interest rate
exchange agreement dated ________________, between _________________
and the Insured existing at Date of Endorsement and secured by the
Insurance Mortgage. The Swap Obligation is included as a part of the
Indebtedness.
• 2. The Company insures against loss or damage sustained by the
Insured by reason of the invalidity, unenforceability or lack of priority of the
lien of the Insured Mortgage as security for the repayment of the Swap
Obligation at Date of Endorsement.
58. www.ambar.org/rpte |
SECURING SWAPS (cont.)
• Other Issues
– Hedge Pledge
– Payoffs
– Legal Opinion Qualification:
“We express no opinion regarding the enforceability
of any guaranty to the extent such guaranty would
result in or require a party to guarantee a swap
obligation and such party is not an eligible contract
participant under the Commodity Exchange Act”