Canadian Structured Finance Law : Canadian Structured Finance Law: Securitization/OTC Derivatives Blog by Stikeman Elliot Lawyers & Attorneys

 Michael Rumball -
 

Whereas the comments on the definition of securitized product and the prospectus disclosure proposals were quite limited and restrained, those on the proposed exempt market rules were both extensive and harshly critical. The general themes were common to most commentators. The proposed rules:

•  are an over‑reaction to the failure of the third‑party sponsored ABCP market in Canada;
•  focus unnecessarily on risks inherent in high‑risk structures such as those originated under the originate‑to‑distribute model or synthetic structures that either did not or no longer exist in Canada;
• inappropriately apply a one‑size‑fits‑all approach to the traditional securitization market; and
• unfairly differentiates between securitized products and other high risk securities.

• Comments
• Trackbacks
• Email This
• Print
• Share Link

 Michael Rumball -

For the most part the CSA’s proposed prospectus disclosure rules escaped substantive comment although we and a few others did provide some technical comments. This is not surprising in as much as they by and large are a copy of the existing rules under Reg AB Among the few items which did attract attention were those requiring the disclosure of financial information in respect of significant obligors, credit enhancers and counterparties and that requiring disclosure of any material conflict of interest between participants in a transaction and investors.

In respect of the first item, several commentators pointed out that, where the obligor or credit enhancer is a private company, imposing an obligation on an issuer to obtain the financial information and to disclose it would be unfair and may preclude a seller from accessing the market due to a refusal of the obligor, etc. to provide such information. Most of these commentators recommended that it should be sufficient to direct the reader to publicly available information, if any, and not require disclosure of private and/or confidential information.

• Comments
• Trackbacks
• Email This
• Print
• Share Link

 Michael Rumball -
 On August 31 the comment period in respect of the Canadian Securities Administrators’ Proposed Securitized Product Rules ended. About 30 comment letters were submitted. Over the next couple of weeks I will briefly canvass the comments received on the prospectus disclosure rules and the exempt market rules. Following is a brief discussion of the more general comments.

While almost all commentators concurred with the general principles enunciated by the CSA, a few concluded from the distinct nature of the traditional Canadian securitization market (no originate-to-distribute model; good asset performance) and the nature of the financial crisis that it experienced (liquidity only), that any new rules should leave traditional ABS alone and concentrate solely on those transactions which in fact at the root of the financial turmoil of the past few years. These were identified as those transations utilizing originate‑to‑distribute model and those involving synthetic securities. Although this view has much to recommend it, it does not seem likely that the CSA will abandon the omnibus approach which they have taken. They will probably feel that they have already provided sufficient recognition of the distinct nature of the Canadian market by refraining from applying the more intrusive Dodd‑Frank and Reg AB II proposals, an approach otherwise all but uniformly praised by commentators.

• Comments
• Trackbacks
• Email This
• Print
• Share Link

Margaret Grottenthaler

UBS terminated its ISDA Master and FX transactions with Lehman Brothers Inc., was obligated to return about $23 million in collateral, wanted to set-off against that $23 million amounts owing by LBI to UBS affiliates as contemplated by the cross-affiliates set-off provision. Judge Peck said no. These types of clauses are enforceable pre-bankruptcy, but not once a proceeding is commenced. Mutuality is a requirement for post-petition set-off. He said, “Contractual provisions that purport to create synthetic mutuality are not a substitute for the real thing.”

Section 553(a) of the U.S. Bankruptcy Code requires mutuality as a condition of preserving a right of set-off. UBS argued that contractual set-off was an exception to the mutuality requirement. Judge Peck disagreed simply on the basis that the statute did not provide for that exception. 

• Comments
• Trackbacks
• Email This
• Print
• Share Link

Margaret Grottenthaler

Since September more than a few readers of this blog asked why I had not posted a piece on my best summer reads. Since that was by far my most popular post of 2010 (yes it did get more hits than my post on the Indalex case), I guess I know where your priorities lie. I must meet the demands of my audience. I have to admit I stuck to fairly light fare for most of the summer, but I did read a few things in the crime/detective/thriller genre that you may like.

Red on Red by Edward Conlon – This first novel of Conlon’s, a working NYC detective (albeit a Harvard educated one), is narrated by a somewhat morose and conflicted NYC detective, dealing with a couple of related murders and complicated relationships with his partner (on whom he’s been asked to spy by internal affairs) and his spouse, his father – well just about everyone really. It’s more about the relationships than solving the crimes. Red on red refers to criminal on criminal crimes, but allegorically in the novel refers to the narrator’s betrayal (at least initially) of his partner (and his spouse, his father - well just about everyone really). The characters were well drawn and the writing more literate than the typical detective fare. 

• Comments (1)
• Trackbacks
• Email This
• Print
• Share Link