Credit Crisis Response Team
The fallout from the ongoing credit crisis precipitated by the subprime mortgage market meltdown will continue to affect the economy for some time to come. Increased defaults, bankruptcies, litigation and heightened government scrutiny will force financial institutions, lenders, investment banks, hedge funds and others to contend with a variety of complicated regulatory and transactional issues, as well as increased individual and class action litigation, government enforcement actions and internal investigations.
To assist our clients in navigating the complex transactional, regulatory and litigation effects of the credit crisis, Pepper Hamilton LLP has formed a Credit Crisis Response Team. This interdisciplinary group brings together attorneys practicing in the areas of government regulation of financial institutions, commercial and mortgage banking, debt finance and securitizations, bankruptcy, securities regulation and enforcement, real estate law, internal investigations and litigation. The team, more than 70 lawyers strong, communicates frequently to monitor how the latest developments will affect the firm’s clients.
Bankruptcy and Distressed Debt
We help financial services clients collect loans in default and realize on their collateral security, as well as in restructuring and working out problem loans. We often advise clients in lender liability issues and the sensitive judgments that must be made to avoid liability on the one hand and losses resulting from an overly cautious approach on the other.
One aspect of the credit crisis is the rise in “distressed” commercial debt. Distressed debt transactions, involving either the lender itself or a third-party purchaser, are often quite complex, and require legal counsel who is experienced in these matters and who can bring timely judgment and efficient representation to bear, as well as bringing a practical business approach to successfully achieving the client’s goals.
We are experienced in representing commercial banks, finance companies, hedge funds and other lenders in working out distressed debt situations. These transactions include consensual restructuring of debt both out of court and through pre-packaged bankruptcy plans, negotiating with mezzanine lenders and other sub-debt holders, realizing on collateral, deed-in-lieu transactions, judicial enforcement of creditor rights, and enforcement of rights in bankruptcy proceedings. The firm also is experienced in representing lenders in debtor-in-possession financings.
Securitizations and Real Estate Finance
We represent clients in asset sales and securitization transactions, representing issuers of public and private debt securities, beneficial holders of such securities and trustees. We have advised clients on all-cash CDOs and mezzanine debt/synthetic CDOs, as well as traditional asset-backed securities. Our experienced team assists clients in addressing real estate transactional issues for investors, lenders, originators, syndicators, borrowers, investment banks, mortgage insurance companies, sellers, conduits, trustees, REMICs, special-purpose entities, real estate developers, REITs, owners and purchasers. We also handle secondary mortgage market issues, including those affecting mortgage loan servicing operations, mortgage wholesale and correspondent arrangements, the purchase and sale of mortgages and mortgage servicing and subservicing rights, various aspects of the securitization of mortgage loans, and loan documentation, including state and federal disclosures. We also analyze, negotiate and consult with respect to the formation and closure of ISDA and OTC swap contracts.
Consumer Finance Compliance and Litigation
We represent consumer financial services companies in regulatory compliance matters regarding consumer finance, and defend clients in class action and individual lawsuits throughout the country alleging violations of the Equal Credit Opportunity Act, the Truth-in-Lending Act, the Fair Credit Reporting Act, the Fair and Accurate Credit Transactions Act, the Fair Debt Collections Practice Act, the Real Estate Settlement Practices Act, unfair and deceptive acts or practices statutes, and other federal and state laws. We defend claims under federal statutes and regulations that govern consumer financial services and under state consumer finance laws including the Uniform Commercial Code, and unfair and deceptive trade practices laws.
Financial Institutions Enforcement and Compliance
Our financial services enforcement and compliance team includes former federal and state regulators. We represent banks, insurance companies, securities and investment firms, and other financial services companies on regulatory compliance issues, governmental investigations, and enforcement actions. Using the resources of the firm’s litigation, banking, securities and investment management practice areas, we handle federal and state regulatory proceedings before banking and securities regulators, as well as the Justice Department and state attorneys general. The group also has an active examination and regulatory review practice that provides ongoing advice regarding day-to-day compliance, regulatory examinations and the due diligence process, as well as litigation risk management. The group performs preventative risk assessment reviews to identify problems before they arise. We also assist individuals and institutions in evaluating and mitigating regulatory examination findings, negotiating consent agreements, memoranda of understanding, and other written settlement agreements, and representing institutions in administrative and court litigation.
Securities Enforcement and Litigation
Our securities enforcement and litigation practice includes former SEC and FINRA attorneys and former federal prosecutors who defend clients in investigations, enforcement actions and prosecutions by the SEC, the Justice Department and state attorneys general. The team also conducts internal investigations and develops compliance programs for clients. We guide and defend clients through government investigations and litigation involving a wide variety of allegations, including insider trading, improper revenue recognition and other types of financial fraud, market manipulation, mutual fund market timing and late trading, improper sales practices, excessive markups and advisory fees, inadequate supervision of securities professionals and accounting irregularities by corporate executives. Pepper is well-equipped to defend clients in shareholder class actions and derivative litigation across the country. We have obtained dismissals, defeated class certification, prevailed in summary judgment and other dispositive motions, and won defense verdicts at trial.
Our team is experienced in all types of internal investigations, including potential criminal prosecution, SEC and other regulatory enforcement actions, compliance issues, and civil litigation (including derivative and class actions). We have in-depth knowledge and experience in handling complex and highly sensitive investigations and mitigating the adverse effects of privilege/disclosure issues, media relations, and the other fallout and public scrutiny that can result from perceived scandals. The firm also has the experience to implement remedial measures resulting from internal investigations, and to develop and implement effective compliance programs to help prevent or detect future problems. Our internal investigations team includes former prosecutors and attorneys with significant experience with regulatory agencies.
Pepper advises both insurance companies and corporate clients through all stages of the insurance relationship: from evaluation and underwriting of commercial exposures to risk, to the analysis of standard and manuscript wordings in various products forms, through to the submission and negotiation of coverage for claims. We have worked with all types of entities involved in the insurance relationship (such as agents, brokers, intermediaries, MGAs and TPAs), and we thoroughly understand the key concepts that apply to insurance or risk-transfer contracts, such as triggers of coverage, allocation issues, the duty to defend, deductible billing, self-insured retentions, and other terms and conditions fundamental to primary, excess or umbrella obligations, or other reinsurance or alternative structures. Because of our experience in reinsurance, we also counsel about captive formation and other self-insurance or alternative risk-transfer programs.
We also advise insurance carriers and businesses on bankruptcy issues involving insurance, such as claims to the proceeds from corporate insurance, insolvency issues and credit risk.
Pepper tax lawyers are experienced in counseling about the tax implications of business entities in distress. We counsel companies, partnerships, limited liability companies, business trusts and other entities that are in financial difficulty, whether insolvent or not, as well as lenders, investors and prospective buyers of such business entities. We also represent securitizations in similar difficulties, and the insurers, trustees and investors or note holders. Issues that frequently arise include how assets are taxed, tax return requirements, transferability of tax attributes, including Code Section 382 planning, abandonments, the implications of debt forgiveness and modifications on borrowers and lenders, members of LLC’s and partnerships, and bankruptcy and workout tax planning.
Because of our expertise in REMIC and REIT taxation, we are able to assist in the complex issue confronting the sale, assignment, restructuring and refinancing of mortgages and the impact that such actions will have on the tax status of the entity as a REIT or REMIC.
- representing a hedge-fund-affiliated finance company working out its $50 million loan to a large luxury resort club company, including restructuring its debt and establishing the debtor-in-possession lending facility which enabled the borrower to find permanent financing of its debt, resulting in our client recovering all it was owed, including contracted interest and fees
- representing a number of subprime lenders as Delaware counsel in bankruptcy proceedings, including the debtor Delta Financial in its filing in Delaware, and Deutsche Bank as trustee in the New Century and American Home bankruptcies
- refinancing or restructuring the debt facilities of a mid-sized company in the plastics industry that has been affected by falling sales and increased prices
- representing RAIT Financial Trust in securities class action litigation and a related derivative suit involving CDOs which include subprime and Alt A mortgages
- representing one of the parties sued in litigation arising out of the American Business Financial Services bankruptcy, involving, among other matters, how the company priced the residual interests of the I/O strips in a mortgage securitization
- representing a major national mortgage lender in advising it on its exposure to a major mortgage servicer in the event of the servicer’s bankruptcy
- representing a large New York-based private equity firm in its due diligence investigation to (i) purchase one of the largest subprime lenders in the United States, including advising it on the rapidly changing regulatory, legislative and litigation surrounding the subprime industry generally; and (ii) participate in a management-led buyout of one of the largest subprime mortgage servicers including, in addition to advising on developments affecting the subprime industry, reviewing its major portfolio purchases, active litigation, securitizations to fund its multi-billion dollar advances, and other matters
- representing Versa Fund (formerly Chrysalis Partners/Agarista Funding) in its acquisition of Holliston Mills, the nation’s oldest and largest manufacturer of coated cloth material and specialty packaging materials, through an acquisition of the distressed senior debt, bankruptcy filing and provision of DIP financing, and credit bid in the bankruptcy sale; and negotiation and closing of partial acquisition financing and post-reorganization credit facilities
- representing a large U.S. bank in connection with a $250 million line of credit to another large U.S. financial institution, providing it with an additional source of liquidity in the face of potential issues arising directly or indirectly from the subprime crisis and other matters
- representing a large U.S. bank in connection with a $2 billion repurchase facility with a leading Scandinavian bank, to provide the Scandinavian bank with an additional source of liquidity in the face of potential issues arising directly or indirectly from the subprime crisis and other matters. This facility is structured to in effect give the bank indirect access to the U.S. Federal Reserve Discount Window under the Fed’s revised policies adopted in response to the subprime crisis.
- representing a regional bank in a restructuring of the debt to a major automotive supplier, including negotiating guarantees by third parties, real estate mortgages and working capital
- representing a monoline insurer in connection with the transfer of servicing and protection of assets in separate securitization vehicles from the creditors of a bankrupt mortgage originator
- representing Hanover Mortgage Capital REIT in restructuring its repurchase agreements
- representing finance companies and banks respond to investigations instituted by the Attorney General for the State of New Jersey
- restructuring two Collateralized Loan Obligations and three Collateralized Debt Obligations for which a client is the manager; we have amended the TRS ISDA documentation, amended the Indenture and commented on consent solicitation letters
- handling numerous bankruptcy and workout matters for a major financial institution involving various industries including coal mining, manufacturing, retail and finance
- representing 23 hedge funds in the restructuring of $250 million bond issue through a Plan of Reorganization that resulted in the creditors gaining full control of the company
- representing regional bank in workout/liquidation of multiple troubled manufacturing companies
- representing committee of lenders in connection with investment company liquidation/restructuring including disposition of numerous hard assets
- representing a secured commercial lender in the liquidation of one of the nation’s largest egg producers; this multi-state representation involved restructuring of loan documentation to include cross-collateralization and cross-defaults, forbearance agreements, foreclosure actions, confessions of judgment and commercial collection suits in several jurisdictions; we also represented the lender in the sale and financing of the recovered collateral to purchasers
- representing a real estate lender in the workout of its financing of several large residential subdivisions owned by single-purpose entities with the same guarantors. Because of market conditions, including the termination of lot take-downs by national homebuilders, the developers defaulted on the loans. Matters are complicated by subordinate purchase money and mezzanine lender and intercreditor agreements. Forbearance agreements, featuring extended maturities in exchange for increased equity, are in place.
- representing four funds specializing in investments in distressed debt with respect to their claims in the Dow Corning bankruptcy case, which involves claims in excess of $330 million. Pepper clients are demanding payment of the default interest rate on the bank debt that they own. Dow’s plan of reorganization went effective in 2004 and paid creditors in full with interest at the non-default rate.
- representing bank in defense of breach of fiduciary duty claims, involving the administration and investment decisions regarding welfare and pension plans.