orrick powerpoint template january 17, 2001 name of presenter kellogg school of management...
TRANSCRIPT
Orrick PowerPoint Template
January 17, 2001Name of PresenterKellogg School of Management
Securitization 2003 Spring Colloquium
Cam CowanMay 12, 2003
Legal Issues in Securitization: What You Don’t Know
Could Hurt You
Agenda
• Hypothetical Transaction
• Structuring the Transaction
• Selling the Transaction
-
•Mortgages
•Credit Card Receivables
•Auto Loan Receivables
•Student Loans
•Corporate Loans
•Tobacco Settlement Payments
•Record Sales
•And maybe . . .
Source of Payment
Cubs Ticket Sales
Ticket Sale Securitization
There must be a reasonable predictability of a consistent payment stream
• Nature of Obligors• Nature of Originator• Nature of Receivables
Confirming predictability of cash flow
• Attendance statistics, season ticket holders, ticket prices, continuity
Do the Chicago Cubs ticket sales meet the requirements?
• Average annual tickets sold (past 20 years): 2.5 million
• Current average ticket price: $30
• Current average annual ticket revenues: $75 million
• Last time won World Series: 1908
Ticket Sale Securitization
• Bankruptcy Law
• Commercial Law
• Tax Law
• Securities Law
• [Bank Regulatory]
Chicago Cubs Ticket SalesStructuring the Transaction
Chicago National League Ball Club, Inc.“Owner and Servicer”
Chicago Cubs LLC“Transferor”
Chicago Cubs Master Ticket Trust
Investors
Structure Summary
Receivables $
Receivables
$Class A, Class B and Class C Notes
$
Chicago Cubs Ticket SalesStructuring the Transaction
The Parties:
• “Obligors” – The fans• Originator/Obligor – The Chicago Cubs• Servicer – The Chicago Cubs• Trustee – A financial institution• Credit Enhancer – Subordinated class of securities• Rating Agencies – S&P, Moody’s, Fitch• Underwriter – Investment bank• Investors – Pension fund, insurance company, financial institution• Counsel – Mayer Brown Rowe & Maw
Bankruptcy Law -- Make the SPV “Bankruptcy-Remote”
• Protecting the SPV from voluntary and involuntary bankruptcy
• Protecting the SPV from substantive consolidation
• Creating a “true sale” of receivables
Chicago Cubs Ticket SalesStructuring the Transaction
Commercial Law – Perfect the Transfer
• Creating the security interest
• Perfecting the security interest
• Giving the security interest priority
Chicago Cubs Ticket SalesStructuring the Transaction
Tax Law –- Avoid Additional Taxation
• Taxation of the Originator
• Taxation of the SPV
• Taxation of the Investors
Chicago Cubs Ticket SalesStructuring the Transaction
• Applies to Investment Companies – entities that are principally engaged in owning or holding “securities”
• “Security” is broadly defined
• Compliance is costly and burdensome
• Find an exemption: Sections 3(c)(1), 3(c)(5), 3(c)(7); Rule 3a-7
Investment Company Act of 1940 -– Avoid It
Chicago Cubs Ticket SalesStructuring the Transaction
• Securities Act of 1933
• Securities Exchange Act of 1934
• ERISA
• Offering the Securities
• The Closing
Chicago Cubs Ticket SalesSelling the Transaction
The Securities Act of 1933 –- Comply with It
• Requires offers and sales of securities to be registered, unless exemption available
• Restricts offering communications
-- Pre-filing period-- Waiting period-- Post-effective period
• Exemptions from Registration -- Regulation D, Rule 144A, Regulation S
Chicago Cubs Ticket SalesSelling the Transaction
The Securities Act of 1933 –- Comply with It
• “Prospectus” disclosure requirements
• Liability for false registration statement
-- Section 11 liability-- Due diligence defense
[And “Blue Sky” Laws]
Chicago Cubs Ticket SalesSelling the Transaction
The Securities Exchange Act of 1934 -- Don’t Forget It
• Anti-fraud provisions – Rule 10(b)(5)
• Periodic reporting requirements
• Sarbanes-Oxley requirements
Chicago Cubs Ticket SalesSelling the Transaction
ERISA -- Get Help
• Pension Plan investors
• Prohibited Transactions
-- Between Plan and party in interest-- Between Issuer and party in interest
• Exemptions
• Debt securities
Chicago Cubs Ticket SalesSelling the Transaction
Communications –- Be Careful
• Prospectus defined in Section 2(a)(10) of the ‘33 Act:
• Provides investors with material information:-- Description of the notes
-- How, when, and how much principal and interest will be paid -- Information about the Chicago Cubs
-- Risk factors:•Baseball strike•Loss of Sammy Sosa•Poor team performance•Prolonged bad weather•Beer prohibition•Damage to Wrigley Field
Chicago Cubs Ticket SalesSelling the Securities
Communications –- Be Careful
• Regulation FD (Fair Disclosure)
• Addresses selective disclosure of material, non- public information by issuers
• Requires issuer to make concurrent, public disclosure of material, non-public
information
Chicago Cubs Ticket SalesSelling the Securities
Communications –- Be Careful
• Electronic Roadshows
-- Roadshows are allowed to be performed over the Internet
-- Transmission cannot be a “prospectus” -- Registered offerings -- Rule 144A offerings -- Regulation S offerings
Chicago Cubs Ticket SalesSelling the Securities
The Closing -- Bring the Champagne
• Documents Reviewed and Executed
• Opinions Delivered-- authority, enforceability, no conflicts, etc.-- commercial law opinions-- true sale/non-consolidation opinions-- tax opinions-- securities law opinions-- 10(b)(5) opinion
• Money Wired and Bonds Released-- The Chicago Cubs receive the proceeds of the sale and the
investors receive their securities
Chicago Cubs Ticket SalesSelling the Securities
The Chicago Cubs will now have money to pay its players, causing them to express their gratitude . . . .
Chicago Cubs Ticket SalesEverybody is Happy
Chicago Cubs Ticket SalesEverybody is Happy
Orrick PowerPoint Template
January 17, 2001Name of PresenterKellogg School of Management
Securitization 2003 Spring Colloquium
Cam CowanMay 12, 2003
Legal Issues in Securitization: What You Don’t Know
Could Hurt You