Financial Markets News & Updates

Selling Derivative Claims

Mon, 30 Aug 2010 11:40:08 -0400

The financial crisis has resulted in the termination of billions of dollars worth of derivatives between sophisticated market participants. When a defaulting party files for bankruptcy, the non-defaulting party is often left with a claim against the estate of its counterparty--and claims holders may seek to monetize them by selling to third parties.

Steven B. Levine, Finance Practice Group Leader at Brown Rudnick, and Timothy C. Bennett, Associate at Brown Rudnick, run through the considerations potential sellers should have in mind when negotiating and documenting a claim sale.

To learn more, please read the article Selling Derivative Claims in Derivatives Week on our website.

Frederick's Sees Attraction of Liquidation Firms' Lending Arms

Steven B. Levine (slevine@brownrudnick.com) — Thu, 26 Aug 2010 11:37:21 -0400

Today it is common for liquidation firms to appear among the names of a company's lenders as an alternative source to a bank. For example, earlier this month, Frederick's of Hollywood Group Inc. closed a $7 million loan with a lender affiliated with a liquidation firm as part of its recapitalization and strategic turnaround.

In this article, Steven B. Levine, Brown Rudnick’s Finance Practice Group Leader, offers insight on the attraction of liquidation firms.

To learn more, please click here.

U.S. Supreme Court Drastically Reduces Extraterritorial Application of U.S. Securities Laws

Tue, 17 Aug 2010 11:19:29 -0400

Foreign companies will welcome the decision of the United States Supreme Court in Morrison v. National Australia Bank Ltd, US, NO. 08-1191 because it substantially narrows their exposure to private causes of action arising under the principal anti-fraud provisions of the U.S. securities laws -- section 10(b) of the Securities Exchange Act of 1934 and Securities Exchange Commission Rule 10b-5. These provisions, which make it unlawful to employ manipulation or deception in connection with the purchase or sale of any security, were long interpreted to apply to transactions in foreign countries involving U.S. conduct or having substantial effect in the U.S. Reversing decades of lower court decisions on the application of Section 10(b) and Rule 10b-5, the Court held that such provisions apply "only in connection with the purchase or sale of a security listed on an American stock exchange, and the purchase or sale of any other security in the United States."

For more information, please click here.

SPACS: Listing on the Official List or AIM

Lena Hodge (lhodge@brownrudnick.com) — Fri, 30 Apr 2010 10:33:41 -0400

Special purpose acquisition companies (SPACs) are commonly used as investment vehicles in the U.S. markets and have been adapted for use in the European markets, such as AIM and NYSE Euronext. Growing market acceptance of SPACs, in both the U.S. and Europe, prompted the Financial Services Authority (FSA) to review and comment on the admission of SPACs to the Official List. Currently, due to the continuing economic turmoil and resultant inaccessibility of debt, there has been renewed interest in SPACs and how to evolve the structure in order to address the status current of the financial markets and for their admission to either the Official List or AIM.

For more information, please click here.

Is there a place for PIPES on the London Markets? Are PIPES helping to keep the liquidity flowing and the capital markets in order?

Lena Hodge (lhodge@brownrudnick.com) — Fri, 30 Apr 2010 10:30:20 -0400

Private investment in public equities (PIPEs), is a transaction in which a public company issues equity securities in a private placement to one or more substantial investors (whether overseas or strategic company, wealthy individuals or private equity houses) usually at a discount to the market price of its shares. PIPEs have been a feature of the U.S. and Asian markets for some time, and are now, also emerging in Europe as an attractive financing option for public companies. In the current market, traditional financing options are either unavailable or have become relatively expensive. As a result private equity funds, without debt financing for buyouts, are becoming more interested in investing in PIPEs, particularly in view of the reduced equity values of many public companies.

For more information, please click here.

Winterflood Loses Appeal; Market Abuse Does Not Require Intention

Fri, 30 Apr 2010 10:26:19 -0400

The Financial Services Authority (FSA) has successfully resisted the appeal brought by Winterflood, the biggest market maker on the Alternative Investment Market, in which it contested a £4 million fine and finding of market abuse levied by the FSA in 2008.

For more information, please click here.

This Way Out

Steven B. Levine (slevine@brownrudnick.com) — Fri, 30 Apr 2010 10:20:52 -0400

Exit financing was hard to come by at the beginning of 2009, but one year later, the market seems much improved.

Steven B. Levine, Brown Rudnick’s Finance Practice Group Leader, offers insight on the state of today’s exit financing market. Debtors now have a multitude of potential lenders, pricings on financings have dipped, and exit loans have started to contain more new money than they did at the onset of 2009 -- a trend that is expected to continue this year.

To learn more about the exit financing market, please read the article titled This Way Out on our website.

Winterflood Appeal Against FSA Censure

Wed, 7 Apr 2010 15:03:35 -0400

In an appeal heard on 9 March 2010 the Court of Appeal was asked to determine whether, as the FSA asserts, a legal entity can be guilty of market abuse absent any element of intention or knowledge (despite the reference to an "actuating purpose" in the Code of Market Conduct). If the Court of Appeal decides in favour of the FSA, it appears that the due diligence and trade monitoring required of traders will increase substantially.

For more information, please click here.

New FSA Framework for Determining Financial Penalties

Fri, 2 Apr 2010 11:56:13 -0400

Since 6 March 2010 the UK Financial Services Authority (FSA) has changed the way it approaches the calculation of fines.

At the beginning of March 2010, the FSA published its policy statement (PS10/4) entitled "Enforcement Financial Penalties." This followed a period of consultation during the second half of 2009 as a result of the FSA’s consultation paper of the same name (CP09/19).

For more information, please click here.

Bail-Out Updates for Tuesday, October 28, 2008

Tue, 28 Oct 2008 17:29:22 -0400

Distressed mortgage assets? What distressed mortgage assets? The Emergency Economic Stabilization Act of 2008 (EESA), introduced in September and signed into law earlier this month, was touted as the government’s response to the credit market’s meltdown caused (in large part) by the subprime mortgage crisis. Naturally, the core of the government’s bail-out plan was considered to be the Treasury’s “troubled asset relief program” (TARP): the power to purchase troubled residential and commercial mortgage-related securities (and other financial instruments) from the U.S. financial institutions. The $700 billion allocated to the bail-out program (or even the immediately available $250 billion) could buy the government a lot of mortgage-backed paper. The biggest problem with the government’s bail-out plan was expected to be the lack of implementation details, most notably the pricing and auction mechanisms. The second issue had to do with the timing: the stock and credit markets were in a free fall and drastic and immediate measures were required to restore not just the liquidity but the confidence of Wall Street and Main Street. Finally, the third and not surprising problem: there is no shortage of supplicants for government largesse.

For more information, please read following alert.

Bail-Out Updates for Tuesday, October 14, 2008

Tue, 14 Oct 2008 17:39:52 -0400

Is the Emergency Economic Stabilization Act of 2008 turning out to be the real deal? On the heels of yesterday’s Manic Monday, when the Dow Jones Industrial Average gained 936 points (nearly doubling the largest daily point gain in its history and recording the first 10+% gain since 1933), the Treasury today announced the details of its voluntary Capital Purchase Program to encourage U.S. financial institutions to build capital to increase the flow of financing to U.S. businesses and consumers and to support the U.S. economy. Under the program governed by the bail-out legislation the Treasury will take equity stakes in U.S. financial institutions by purchasing up to $250 billion (out of the $700 billion authorized by Congress) of senior preferred shares. The details of the government’s investment, as outlined in the program’s term sheet published by the Treasury, are covered in this alert.

Latest Developments in UK Government's Banking Rescue Plan

Mon, 13 Oct 2008 15:17:01 -0400

Details have been released today regarding the UK government’s banking rescue plan which was first announced on 8 October ("the Scheme"). Our Alert describes the latest developments and key points of this rescue plan.

Bail-Out Updates for Monday, October 13, 2008

Mon, 13 Oct 2008 14:01:33 -0400

Was the Emergency Economic Stabilization Act of 2008 a fundamentally flawed approach to the credit market crisis or is the lack of implementation mechanics responsible for the bail-out legislation’s failure to impress the markets? Only time will tell. For now, however, ten days following the enactment of the Treasury’s $700 billion rescue plan, the downward spiral of the financial markets has continued, although an uptick is predicted for today. Last week the Treasury announced the appointment of Neel Kashkari, the 35-year old former Goldman Sachs executive and current Assistant Secretary of the Treasury for International Economics and Development, as the Interim Assistant Secretary of the Treasury for Financial Stability responsible for overseeing the bail-out program. The Treasury also published its initial program guidelines entitled “Process for Selecting Asset Managers Pursuant to the Emergency Economic Stabilization Act of 2008.”

Bail-Out Updates for Friday, October 10, 2008.

Fri, 10 Oct 2008 17:29:56 -0400

Parsing the Fine Print on Executive Compensation:
The U.S. Treasury Bail-Out Legislation became law on Oct. 3, 2008. As enacted, it combines three massive pieces of legislation: (1) the Emergency Economic Stabilization Act of 2008 (the Bail-Out Act), (2) the Energy Improvement and Extension Act of 2008, and (3) the Tax Extenders and AMT Relief Act of 2008 (the AMT Act) (collectively BEAR). BEAR is a beast, at over 400 pages, containing numerous and extremely complex provisions. The Bailout Act and the AMT Act portions of BEAR contain a number of amendments to the Internal Revenue Code (the Code) which apply to the taxation of executive compensation. The changes to the Code are riddled with intricacies and cross-references to existing Code sections which require a detailed analysis to determine if the modifications in tax law apply to a given entity and employer.

Bail-Out Updates for Friday, October 3, 2008.

Fri, 3 Oct 2008 16:56:17 -0400

In a major reversal of Monday’s surprise rejection of the bail-out plan by the House of Representatives, the House this afternoon, by a vote of 263-171, approved the financial rescue plan that passed the Senate two days earlier. The House vote was the result of (a) a strong lobbying effort by Democratic and Republican Congressional leaders, (b) the addition of tax relief and incentive provisions that had been pending in other bills, and (c) the temporary increase in FDIC insurance from 100,000 to 250,000. But the strongest inducement for the vote shift came from the market and its 777+ point drop in response to the negative vote on Monday. The constituents in the districts took this to mean that the predictions of a financial meltdown may in fact be true, and sent the message to their representatives that a relief measure was necessary even if it ran counter to their ideology.

SEC Extends Emergency Orders on Short Sales.

Fri, 3 Oct 2008 13:42:40 -0400

As indicated in our prior alert, SEC Bans Short Sales in Financial Services Companies; Requires Disclosure of Short Sales, the Securities and Exchange Commission (SEC) adopted emergency orders on September 18, 2008, prohibiting short selling by all persons in the securities of 799 financial services companies and requiring institutional investment managers to disclose their short sales. Both orders were set to expire at 11:59 p.m. EDT on October 2, 2008, unless extended by the SEC. On October 1, 2008 the SEC extended the ban on short selling in financial services companies. The ban will now terminate at 11:59 p.m. EDT on the third business day after enactment of legislation to stabilize the credit markets and the financial system, but no later than October 17, 2008. Since the SEC delegated to each national security exchange the authority to identify the companies covered by the ban, the list has grown to over 950 companies.

Hedge Funds Should Re-Negotiate Prime Brokerage Agreements

Thu, 2 Oct 2008 15:04:24 -0400

Lehman Brothers’ prime brokerage customers are reeling from that institution’s collapse. Many other prime brokers have been acting under the terms of their customer agreements to use their clients' assets for their own purposes, and in some cases, the clients have been ignorant of this, and in many situations, unaware of the implications. Hedge funds and other prime brokerage customers should take advantage of this time to re-negotiate their brokerage agreements to do what they can to ensure investments are adequately protected against further harm and future vulnerability.

Bail-Out Updates for Wednesday, October 1, 2008.

Wed, 1 Oct 2008 14:33:31 -0400

If at first you don’t succeed (in the House), try, try again (in the Senate) appears to be the motto of the White House and the legislators favoring the financial market bail-out. The defeat of the draft legislation in the House on Monday and the subsequent one-day record decline of the Dow Jones industrial average have not derailed the rescue proposal. The Senate is scheduled to vote Wednesday evening on its own rescue bill which, while including every substantive provision of the House version (reviewed in our Monday’s alert), adds new provisions aimed at assuring the bill’s safe passage in the Senate.

Bail-Out Updates for Monday, September 29, 2008.

Mon, 29 Sep 2008 15:43:29 -0400

Breaking News: As this Alert is being finalized, reports have been received that as the final votes are tallied in the House, the bail-out bill appears to be short of the votes needed for passage. We will continue to monitor the situation in Congress and will supplement this report once reliable information is available. Last week’s effort to agree on a plan aimed at rescuing the battered financial markets resulted in one of the most dramatic weeks in recent Capitol Hill history. Thursday evening’s White House meeting among President Bush, House and Senate leaders and Senators John McCain and Barrack Obama, far from delivering the needed momentum to finalize the rescue plan, had the opposite effect of fanning the flames of opposition from many Republican lawmakers. As a result, most of Friday’s activity consisted of partisan bickering that threatened the week’s progress. Nevertheless, by Friday evening both parties had reiterated their willingness to work with each other through the weekend in an effort to find a solution to the financial crisis by Monday. By Sunday morning, it was confirmed that Congressional leaders had reached a tentative agreement, a draft of which was distributed to the public in the late afternoon, after further fine-tuning through the early part of the day. Following is a summary of the key provisions of the bipartisan bill.

Bail-Out Updates for Friday, September 26, 2008.

Fri, 26 Sep 2008 16:36:26 -0400

As of this writing, a revolt from the Republican side of the aisle has slowed progress toward Congressional passage of the federal bail-out plan. On Thursday afternoon, the Republican and Democratic congressional leaders announced that they had reached an agreement in principle (detailed below) on the bail-out legislation. The Mission Accomplished banner had to be quickly taken down after the outline was presented at the White House meeting with President Bush, Senators John McCain and Barrack Obama, and leaders from the House and Senate. The meeting was described as contentious and highlighted the fact that many Republican Congressmen are deeply troubled by the details (and, in some cases, the very concept) of the bail-out. It has also been reported that a group of Republican legislators, led by Representative Eric Cantor, has circulated yet another counterproposal to the Treasury plan. The draft legislation would differ drastically from other counterproposals in that it rejects the very idea of the Treasury’s bail-out through the purchase of troubled assets. Instead, this new proposal would have the government provide insurance to financial institutions which hold such assets, with the institutions paying insurance premiums for the coverage. House Minority Leader John Boehner has insisted that a large majority of Republicans will not support the bill unless serious consideration be given to this alternative plan.

Bail-Out Updates for Thursday, September 25, 2008.

Thu, 25 Sep 2008 14:41:40 -0400

Our Tuesday’s alert included references to the Senate bail-out bill introduced by the Senate Banking Committee Chairman, Christopher Dodd. The Dodd bill, however, is not the only existing counterproposal to the draft legislation proposed by the Treasury. A House bill entitled Troubled Asset Relief Act of 2008 was introduced by Rep. Barney Frank, chairman of the Financial Services Committee, as another alternative to govern the bail-out program. From a helicopter view, there are no major substantive differences between the Senate and the House drafts. Both proposals would authorize the Secretary of the Treasury to purchase, and to make and fund commitments to purchase, troubled assets from domestic and, possibly, foreign financial institutions. The troubled assets to be included in the program are defined in both cases as mortgage-related instruments and other assets the purchase of which the Secretary believes necessary to promote market stability. The limit of the program would not exceed $700 billion at any one time. Both versions of the bill include similar limits on the compensation of executives of the participating financial institutions and require foreclosure mitigation efforts on behalf of the Treasury.

Bail-Out Updates for Wednesday, September 24, 2008.

Wed, 24 Sep 2008 16:41:38 -0400

Those of us who cannot wait to see the final legislation authorizing and governing the Treasury’s $700 billion bail-out of financial institutions will have to be a little patient as Tuesday’s developments have put in jeopardy the administration’s plan to have the legislative framework developed and approved by the end of this week. It is no surprise that Congress has refused to give fast-track approval to the original proposal by the Treasury: the Democratic leaders have demanded significant changes to the proposal and some Republicans have expressed misgivings at the prospect of spending a massive amount of taxpayer’s money on bad securities” and the government’s interference into the capital markets. Tuesday’s developments began with Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke testifying on the proposed bailout legislation before the Senate Banking Committee. Paulson and Bernanke both urged a swift passage of the rescue legislation as the only alternative for addressing the root cause of the crisis, reviving the frozen credit markets and preserving the health of the U.S. economy. The testimony was met with much criticism by members of both parties. A similar hearing is taking place today in the House.

Bail-Out Updates for Tuesday, September 23, 2008.

Tue, 23 Sep 2008 09:22:17 -0400

As of this release, the Congress and the Bush administration are in their second day of debate over the largest government bail-out plan in U.S. history aimed at rescuing the ailing credit markets by having the U.S. Treasury acquire the toxic assets that are clogging the financial system. The original draft of the yet-to-be-named bail-out proposal prepared by Treasury and submitted to the lawmakers on Saturday provided the big picture of the government’s plan but was very short on the actual details of its implementation. (Under the bill the details are to be determined by Treasury, without Congressional oversight or judicial review.)