Posted on December 22, 2009 by Hunton & Williams LLP Print This Article

Swap Termination and the Subordination of Termination Payments in the Lehman Bankruptcy

Lehman Brothers Holdings Inc.’s September 15, 2008 bankruptcy was an event of default under thousands of derivatives contracts to which a Lehman entity was a party and for which Lehman Brothers Holdings was the guarantor. This default entitled the vast majority of Lehman’s counterparties to terminate these contracts, and almost all were terminated. The Lehman bankruptcy court will soon address a number of issues related to the termination of these contracts, including the enforceability of “flip clauses” subordinating amounts payable to Lehman on the termination of credit default swaps backing synthetic collateralized debt obligations (CDOs).

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Posted on December 22, 2009 by Hunton & Williams LLP Print This Article

FDIC Asset Sale Safe Harbor Proposal and Regulatory Capital Rule

On December 15, 2009 FDIC undertook a couple of rulemaking matters of importance to securitizations by regulated institutions.

1. FDIC Safe Harbor for Sales of Assets in Securitizations. In 2000, the FDIC adopted a legal isolation safe harbor providing that the FDIC would not use its contract repudiation powers to “unwind” or otherwise challenge the integrity of securitizations satisfying the criteria for treatment as sales under generally accepted accounting principles in the event of the insolvency or receivership of the sponsoring bank. Earlier this year, the Financial Standards Accounting Board adopted revised criteria for sales under GAAP (FAS 166 and 167), under which most securitizations would not qualify as sales for GAAP accounting purposes. If the FDIC were not to respect the integrity of such securitizations, the rating agencies would not be able to provide the requisite ratings that make securitizations by banks viable.

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Posted on December 11, 2009 by Hunton & Williams LLP Print This Article

House of Representatives Passes Finance Rules Overhaul Bill

The House of Representatives passed the "The Wall Street Reform and Consumer Protection Act of 2009" (HR 4173) today in a vote of 223-202.  The legislation creates the Consumer Financial Protection Agency, a council of regulators tasked with identifying companies that the federal government deems as so interconnected with other large companies that its failure would endanger the U.S. economy as whole, and addresses other financial areas like derivatives, hedge funds, lending practices, and dissolution of failing companies.   The Senate is currently drafting its own bill on the same subject matter.
 
Click here for the House Financial Services Committee's press release, click here for HR 4173, click here for the bill's summary, and click here for the Treasury Department's press release.