Right now, many creditors may be considering making accommodations to consumers affected by COVID-19 by offering different ways to help ease the burden of existing debt obligations. In doing so, creditors should take care to follow the special credit reporting rules for such accommodations set forth in the recently passed Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). Continue reading “CARES Act Amends the Fair Credit Reporting Act for Accommodations Extended to Consumers During COVID-19”
New COVID-19 UK Government Financing Options Available
The UK government recently announced a package of measures to provide liquidity to UK businesses during the COVID-19 pandemic. Two schemes are particularly useful for financing needs: the HM Treasury and the Bank of England COVID-19 Corporate Financing Facility and the British Business Bank Coronavirus Business Interruption Loan Scheme.
To read the full text of this Duane Morris Alert, please visit the firm website.
CARES Act Impacts Banking and Finance Industry
The Coronavirus Aid, Relief and Economic Security (CARES) Act includes wide-ranging provisions that will have direct and indirect impacts on the banking and finance industry.
One positive effect of the pandemic is the demonstrable improvement of carbon levels and other environmental measures. So, as national governments consider measures to reopen their economies, lenders and borrowers may want to consider how best to finance the economies’ reemergence. Many hope to see an expansion in areas that stimulate growth in a more environmentally friendly manner.
To read the full text of this Duane Morris Alert, please visit the firm website.
Financial Regulators Require Pandemic Policies in Response to COVID-19 Threats
Federal and state financial regulatory agencies are requiring banks and other financial institutions to have policies in place in response to the current COVID-19 pandemic.
To read the full text of this Duane Morris Alert, please visit the firm website.
Climate Gentrification: Finding the “Hot” Real Estate of the Future
New York, or Kansas City? Miami, or Denver? With the mantra “location, location, location” always relevant to considerations of real estate investment, will climate change cause existing real estate market darlings to fall out of favor? Are concerns about the effects of climate change likely to drive investment away from US coastal hot spots and into the interior? A recent article in Forbes indicates that climate change will force a reckoning in the real estate market that will ripple across both residential and commercial real estate portfolios affecting owners, investors and lenders alike. Rather than seeking out oceanfront property, in future people will want to own a slice of heaven in a nice landlocked community and the more landlocked (and higher) the better! In the January 27 article “These Are The Cities Most People Will Move To From Sea-Level Rise,” the following cities are cited as beneficiaries from migration away from US coastal areas: Atlanta, Houston, Dallas, Denver, Las Vegas, and Austin. Whether these cities actually benefit from climate change migration remains to be seen, and some of these cities may themselves experience climate-related issues affecting their desirability (for example, higher ambient temperatures in the southern and desert regions of the US, and coastal storm threats, could drastically affect the livability of many of the cities cited in the article). Nonetheless, it is worth focusing on the basic premise of the article–climate change will significantly alter the thinking about where it is prudent to buy and invest in real estate. At this moment, it may be almost unthinkable that great US cities such as Miami and New York (which are on the list of the top 20 cities projected to experience the most significant losses due to climate change) may eventually go the way of Atlantis, but for the investor it is not premature to continuously consider these issues and evaluate one’s portfolio accordingly.
Climate Change to Impact . . . Finance?
With much attention currently on geographic locations around the world where the effects of climate change are thought to be keenly felt, including the fires in Australia, rising seas in coastal areas and receding glaciers in the Arctic zone, the potential effects of climate change on other aspects of human culture, such as economic decision-making, has not always generated the same headlines. That is, until a bombshell article published in the DealBook section of The New York Times on January 14 noted that the world’s largest asset manager would implement policies to evaluate investments based on issues of sustainability and climate change. As explained in the article, in the annual letter sent by Laurence D. Fink, founder and chief executive of BlackRock, which has nearly $7 trillion in investments, to the CEOs of the largest companies in the world, BlackRock announced that it intends to exit investments to the extent they “present a high sustainability-related risk.” Cited as potential targets for divestiture are fossil fuel businesses and companies whose management is not sufficiently focused on sustainability. Mr. Fink insists that fiduciary concerns are driving these policies, not politics, suggesting that, in BlackRock’s view, shareholders should evaluate a company’s stewardship of the planet when considering the company’s stewardship of its own business.
BlackRock’s announcement was pivotal in that it was issued by a major institutional player in the capital markets and evidences a policy not just of funding “green projects,” a socially-conscious investment strategy that has been employed by other financiers, but of specifically targeting for divestiture companies engaging in business practices that may have deleterious effects on the environment.
Notably, the NYT article on BlackRock was not the only interesting news on the economic threats posted by climate change. On January 16, The Wall Street Journal weighed in on this topic in “For the Economy, Climate Risks Are No Longer Theoretical.” Writing for WSJ, author Greg Ip leads off with an observation on how the Australian bushfires will negatively affect the Australian economy, he then notes that “[c]limate has muscled to the top of business worries” and financial losses related to climate change may not be subject to successful hedging or recoupment through adaptation or insurance.
It remains to be seen whether BlackRock’s position is the start of a trend toward more focus by banks and other financial institutions on climate-related issues in their lending and finance activities, or whether BlackRock remains a lonely voice on this issue in the capital markets.
Federal Banking Regulators Take Steps to Allow Financial Services for Hemp-Related Businesses
Banking has been an impediment for the cannabis industry because the Bank Secrecy Act of 1970 (BSA) and related regulations―which seek to prevent money laundering and other financial crimes―place onerous requirements on banks when a transaction is suspected to involve illegal activity. 12 C.F.R. Section 21.11. Notwithstanding billions of state-legal cannabis dollars exchanging hands, the commercial banking industry, which is largely federally regulated, is virtually nonexistent in the cannabis space. In 2014, the Treasury’s Financial Crimes Enforcement Network (FinCEN) provided guidance intended to enhance the banking of cannabis-related monies by establishing a category of suspicious activity reporting for “marijuana related businesses.” But, according to FinCEN, as of June 30, 2019, just 553 commercial banks and 162 credit unions had filed an SAR for a “marijuana-related business.”
Unitranche Facilities – Continued Growth in an Uncertain Market: Part II
In an earlier post, I generally discussed the structure of unitranche facilities and their growth in popularity among borrowers since the credit crisis. Of course, this explosive growth has occurred in a relatively benign economic environment. As a result, the inherent limitations of the structure have not been tested by a downturn or, in turn, by bankruptcy courts. Lenders exploring the market must do so with some caution and a fulsome understanding of the rights of, and limitations on, “first out” lenders in a distressed scenario.
By their nature, unitranche debt does not easily allow senior lenders to silence junior lenders in times of distress based on collateral valuation alone because all the borrower’s obligations are secured by a single lien. Instead, protections must be carefully drafted into the AAL. These protections will include, for e.g., waivers of the ability of “last out” lenders to vote in favor of a contradictory plan of reorganization, restrictions on their rights to object to asset sales, and limitations on the rights of such lenders to provide post-petition financing. Similar provisions contained in first lien/second lien intercreditor agreements have been deemed enforceable “subordination provisions” in the context of a bankruptcy. The same should generally hold true for AALs. If an intercreditor dispute arises in the context of a borrower’s bankruptcy, lenders should be mindful that a bankruptcy court might decline to accept jurisdiction (particularly if the borrower is not a party to the AAL), leaving an unrelated state or federal court to address the matter. Continue reading “Unitranche Facilities – Continued Growth in an Uncertain Market: Part II”
Unitranche Facilities – Continued Growth in an Uncertain Market: Part I
A variety of factors have fed the rapid growth in the market for unitranche loans during the last few years. These structures — a hybrid of a traditional single lien and a first lien/second lien facility – began in the lower middle-market and are now commonly found in loan transactions exceeding $100 million.
In this first in a series of posts addressing this quickly developing market, I discuss below the basic structure of unitranche facilities. In later posts I will address certain of the intercreditor issues that necessarily arise when negotiating unitranche loans and the complexities that may be presented by the unitranche structure in a market downturn. Continue reading “Unitranche Facilities – Continued Growth in an Uncertain Market: Part I”
FIRREA: A Powerful Tool for the Government
The U.S. Department of Justice (“DOJ”) financial fraud enforcement program’s actions in the wake of the 2007–2008 financial crisis have led to some of the largest settlements in the history of the DOJ. To date, 10 financial institutions have reached settlements with the DOJ resolving allegations of fraudulent packaging and sale of residential mortgage-backed securities (“RMBS”) in the run-up to the crisis. The government has recovered a total of nearly $62 billion in fines and penalties from these cases. While a few institutions have yet to resolve their RMBS cases with the DOJ, the RMBS cases have largely run their course. A decade out from the crisis, it is worth taking a look back at the conduct that led to these cases, the reasons the government was able to extract such large penalties and how financial institutions can prepare for such enforcement actions in the future.
The full text of this article by Duane Morris partner Christopher H. Casey is available on the firm website.