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At Cadwalader, we believe that the truest measure of our success is the success of our clients. Our case studies provide insight into how we help our clients deal with challenges and seize opportunities in the area of distressed securities: Distressed Derivatives
Cadwalader recently represented several large financial institutions to determine their exposures to distressed counterparties under various master swap agreements (including foreign exchange master agreements), repurchase agreements, securities lending agreements and related documents, such as security agreements and guarantees, including providing advice on best practices in all aspects of such financial institutions’ derivatives businesses, including implementing amendments to current documentation in order to reduce exposure to counterparties and advising on the exercise of, and strategies for, termination rights. In addition, Cadwalader assisted each client in implementing policies and procedures reflecting best practices to manage counterparty risk. In particular, Cadwalader advised these financial institutions regarding their close-out and set-off rights, and the application of the swap agreement safe harbor provisions afforded under bankruptcy law and national banking law. In light of these bankruptcy considerations, Cadwalader also advised these financial institutions with respect to entering into master netting and set-off agreements pre-bankruptcy and how to appropriately structure such agreements to take into account best practices. In addition, Cadwalader prepared swap termination documents and advised each client as to proper notice and delivery requirements. Review of these complex swap agreements, repurchase agreements and securities lending agreements, and providing advice on bankruptcy issues required the coordination of Cadwalader’s capital markets, financial services and financial restructuring groups. Cadwalader attorneys have the expertise necessary to deal with these and other novel and complex issues that have arisen in the derivatives marketplace. Distressed Commercial Paper
Cadwalader recently coordinated the successful restructuring of an asset-backed commercial paper conduit, resulting in a commercial paper program that now operates at full capacity despite the lack of liquidity in the commercial paper market. Cadwalader represented the issuer, a top ten mortgage company (the “Mortgage Company”), in this unique and novel restructuring. Prior to this restructuring, the severe contraction of the commercial paper market limited the amount of commercial paper that could be sold under this program and therefore hampered the Mortgage Company’s ability to originate loans at full capacity. In connection with this restructuring, the rating agencies applied new analyses and criteria to the program and Cadwalader negotiated with the rating agencies to set triggers at appropriate levels to ensure that the Mortgage Company could effectively operate under these new, stricter standards. Cadwalader worked closely with the Mortgage Company and the enhancement providers to resolve issues regarding control rights, bankruptcy concerns, GSE issues, reporting requirements and financial covenants. Members of Cadwalader’s Capital Markets prepared amendments to multiple complex program documents to effectuate this restructuring, devising a strategy to implement the restructured program in such a way to get rating agency confirmation as to the ratings of all notes. The restructuring of this commercial paper conduit, including the amendment of the program documents, negotiation with the rating agencies and enhancement providers required the coordination of Cadwalader’s capital markets, tax, ERISA and financial restructuring groups. Cadwalader attorneys have the expertise necessary to deal with these and other novel and complex issues that have arisen in the asset-backed commercial paper marketplace. Leveraged Market Value Bank Loan Fund
Cadwalader represented the issuer, the placement agent and the leverage provider in connection with the formation of a leveraged market value bank loan fund and the subsequent restructuring of the transaction. The leverage was provided by a revolving tranche of senior notes, and the portfolio was actively managed by a portfolio manager. The terms of the leverage contained a market value trigger that was breached. The breach allowed the leverage provider to liquidate the portfolio. Rather than liquidate the portfolio in an illiquid market, the leverage provider and the holders of mezzanine debt and the holders of the equity agreed to restructure the transaction as a “lightly” managed cash flow bank loan fund. The restructuring resulted in the conversion of the revolving tranche of senior notes into two separate (senior and junior) term loans and the conversion of the mezzanine debt into an equity tranche. Following the restructuring, (i) no principal payments in respect of the portfolio will be paid to the holders of the equity until both term loans are reduced to zero, and (ii) interest and investment earnings in respect of the portfolio may in certain circumstances be diverted to pay principal of the term loans
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