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FDIC Public-Private Investment Program
The FDIC has proposed a program for eliminating the overhang of troubled legacy loans and mortgage backed securities from the books of participating banks through the use of private incentives to pre-qualified private buyers in the form of significant equity participations alongside an equal U.S. Treasury co-investment and fully guaranteed debt. The PPIP structure envisions a market driven auction process designed to encourage both potential sellers and buyers, guided by independent valuation advice, to facilitate appropriate price determination for those legacy assets. The FDIC intends to maintain rigorous oversight of the entire process so as to both encourage identification of legacy loans and securities to be sold by banks and the participation of pre-qualified bidders in the auction process.
Our work on behalf of both buyers and sellers of distressed asset portfolios, including buyers from FDIC, combined with our deep understanding and familiarity with banking and bank regulation, make us ideally suited to assist sellers, buyers or servicers participating in the FDIC public-private program.
Key Strengths
As one of the country’s leading law firms advising financial institutions and investors, Manatt brings proven expertise and sound business judgment to every distressed asset deal. We offer our clients a full spectrum of services relevant to participants in the distressed asset arena, including:
§ Representation of financial institutions in loan restructurings;
§ Representation of creditors in foreclosures, bankruptcies and creditors’ rights proceedings;
§ Representation of loan portfolio sellers and buyers;
§ Representation of parties to CMBS securitized loans;
§ Representation of financial institutions in loan portfolio and related governance matters with regulatory agencies such as the FDIC; and
§ Representation of private buyers of failed bank loan portfolios being marketed through the FDIC receivership auction process.
Extensive Experience
Our lawyers are recognized as domestic and international players in workouts, financial restructurings, bankruptcies and creditors rights litigation, having:
§ Represented creditors in the restructuring of thousands of complex loans, including commercial mortgage loans and other debt securities secured by assets in the United States, Europe, Asia and Latin America;
§ Represented buyers in over 45 non-performing loan portfolio purchases, from initial asset-level due diligence and pricing, contract negotiation, closing and conveyancing, to post-acquisition servicing, including workouts, foreclosures and creditors’ rights litigation;
§ Represented sellers in more than a dozen transactions valued at more than $2 billion, advising our clients regarding deal structure, pre-sale asset positioning strategies, purchase and sale agreements and post-closing purchase agreement administration;
§ Represented creditors in the origination and restructuring of mezzanine debt financings;
§ Represented participants in loan securitizations and capital markets transactions involving a variety of asset types; and
§ Represented acquirers and targets in connection with the acquisition of financial and real estate operating or holding companies.
Bankruptcy and Restructuring Transactions
Our restructuring practice covers all creditor and investor perspectives on loan recovery and debt restructuring both inside and outside of bankruptcy, with particular emphasis on institutional clients. Because real estate is often the most important collateral involved in a bankruptcy filing, we help lender clients resolve problems in the management and operation of foreclosed real estate, the servicing of mortgages and the general administration of loan portfolios. We have extensive experience in workouts of problem properties and mortgage investments, including restructurings, foreclosures and bankruptcies. We also advise lenders on the risks involved in holding, managing and disposing of troubled real estate, particularly lender liability, environmental risk management and regulatory issues.
Our firm’s bankruptcy lawyers have negotiated and prepared the documentation for debtor-in-possession (DIP) financing transactions for many clients, including lenders. We also represent numerous clients in structuring transactions to purchase assets and companies involved in Chapter 11 and Chapter 7 cases, including guidance in evaluating and acquiring assets from bankruptcy estates and distressed businesses, whether as straightforward 363 sales transactions or as proponents of restructuring plans of reorganization.
Representative Transactions
Manatt’s real estate-related bankruptcy and workout experience extends to residential development, resort hotels and other hospitality properties, agricultural properties, healthcare-related projects, office, retail and multifamily projects, restaurants and other franchise-related real estate assets. Examples of our distressed debt and asset recovery work in bankruptcy and restructuring include:
§ Representation of a major money center bank in its restructuring of a $95 million construction loan secured by a San Francisco apartment project. The loan was first restructured, and $40 million of subordinate debt was issued to fund cost overruns. Then, a Chapter 11 case ensued, wherein the debtor’s “cramdown” plan was defeated and relief from stay to permit foreclosure was obtained;
§ Representation of a title claimant to real estate in the Chapter 11 of an entity owning land in Century City, California that ultimately sold for over $110,000,000, the highest price per square foot ever paid for land in Los Angeles; and
§ Representation of the secured bondholders in a workout/foreclosure on membership interests in limited liability companies that owned one of the largest real estate development projects in Los Angeles.
Representative Engagements
§ Representation of major Wall Street institutional lender in Chapter 11 proceeding of high profile luxury residential gold course development in Southern California;
§ Representation of major international bank in Chapter 11 proceedings as well as out of court restructurings of significant Hawaiian resort and residential developments; and
§ Representation of several major opportunity funds in workouts and bankruptcies (including Chapter 11 proceedings) of numerous complex real estate assets.
Loan Portfolio Transactions
Loan portfolio purchase and sale transactions are highly complex. If properly managed, they can be an efficient way to acquire or dispose of debt and REO assets. If poorly managed, they present many traps and pitfalls. Our lawyers help clients develop asset acquisition and disposition strategies that suit their business objectives and risk tolerance, and work efficiently to implement those strategies throughout the contract drafting and negotiation, due diligence, pricing, conveyancing and post-conveyancing stages. Notably, our team closed one of the first portfolio deals to be consummated in the current market cycle, giving us valuable real-time market experience.
Our work on both the buy and sell sides of portfolio transactions helps us stay abreast of the market. For example, in our role as buyer’s counsel, our extensive sell-side experience enables us to anticipate seller concerns and create transaction structures to address them, and vice versa.
CMBS Transactions
For loans that are transferred to pooled investment vehicles, such as mortgage-backed securities trusts, there are additional complexities associated with managing and working out problems. The securitization structure, together with applicable REMIC (and sometimes grantor trust) tax considerations and contractual limitations, tend to restrict the choices available to both borrower and lender. They also add layers of procedural formalities to the financial analysis and communications among parties.
Our lawyers help borrowers, servicers, investors, trustees and other parties to securitized commercial mortgage loans understand the governing securitization documents, and how those documents interrelate with the loan documents. Based on this understanding, we then assist in developing workout strategies and options.
Representative Transactions
Several representative examples illustrate the full-service capabilities and creativity that Manatt lawyers can bring to even the most complex portfolio transactions.
§ A regional bank asked us to assist in the sale of a portfolio of construction loans (consisting of both whole loans and syndicated loans) and REO. The assets were principally secured by residential subdivision property. Our team conducted the sale in a little over nine weeks, including asset-level due diligence and file preparation, contract drafting and negotiation, contract period servicing, and conveyancing. This transaction represents one of the first significant mortgage loan portfolios sold during the current market cycle.
§ We represented a major investment bank in its acquisition of mortgage loans and REO valued at several billion dollars and located throughout the United States, England, the Caribbean and Mexico. Our team evaluated over 300 loan and REO assets involving more than 500 properties in just four weeks, handling title, documentation, bankruptcy, transfer restrictions and other matters. Contract negotiations were handled simultaneously with due diligence, and the conveyancing was completed with the negotiation and execution of thousands of closing documents. The entire transaction was successfully concluded in four months.
§ A global commercial bank asked us to assist in the disposition of well over 200 assets valued in excess of $600 million. In addition to conducting the seller’s due diligence and documenting and closing the transaction, we worked closely with the client to develop a creative disposition strategy for the portfolio – one that a trade periodical later characterized as “pushing the envelope” from the seller’s perspective.
§ The U.S. arm of a global banking conglomerate retained us to sell a distressed loan and REO portfolio, but was constrained by certain loss recognition restrictions. Until the portfolio was marketed and bids were received, however, the purchase price and the amount of the loss generated by the sale could not be known – which posed a difficult challenge in sizing the portfolio for sale. To address this issue the project team devised a two-tranche disposition strategy modeled after the “greenshoe” registrations used in securities offerings. The first sale was sized to fall within acceptable loss limits based on projected sales prices. Prospective bidders were advised that the successful bidder on the first tranche would be offered an option to purchase a second tranche, with composition and price set by the bank after the winning bid was identified. The first sale closed on schedule, thanks in large part to the project team’s efficient, yet comprehensive, due diligence effort. The winning bid was the highest of several that offered a premium in order to acquire the second tranche, and the successful bidder did in fact exercise its option.
§ Recently, a well-known owner of commercial properties sought our assistance in determining whether it was possible to workout a troubled loan that had been included in a CMBS transaction. Our securitization and real estate lawyers were able to track down the pool into which the loans had been securitized, analyze the loan documents, the complex REMIC tax rules and the pooling and servicing agreement provisions governing the powers of the loan servicers, and provide the client with several alternative strategies for working out the troubled loan.
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