Orrick Alert: Following Chapter 9 Plan, Monoline Insurer Must Continue to Make Payments on Old Bonds

Earlier this month, Judge Judith J. Gische of the Appellate Division of the Supreme Court of New York, First Judicial Department found that ACA Financial Guaranty Corporation, as bond insurer, must make future, post-confirmation principal and interest payments on municipal bonds issued pre-bankruptcy.  The Court required these payments despite the fact that the bonds were exchanged for new bonds and cancelled under the municipality’s chapter 9 plan.  This decision is an unequivocal win for holders of distressed municipal bonds wrapped by monoline insurance policies and makes clear that insurers must continue to extend coverage to bondholders after a municipal issuer files for chapter 9 and obtains a discharge of the bond debt in bankruptcy.  This outcome may impact negotiations and potential resolutions in Detroit’s chapter 9 case and other recent municipal bankruptcies and distressed scenarios, such as Puerto Rico.  To read the entire Orrick Alert, please click here.

Orrick Alert: IRS Issues Changes to the Mixed Straddle Regulations

On August 2, the IRS issued temporary regulations relating to accrued gain or loss associated with a position that becomes part of a section 1092(b)(2) identified mixed straddle.  The temporary regulations segregate pre-identification gain and loss on a mixed straddle position from post-identification gain and loss, preventing taxpayers from using identified mixed straddles as an alternative to selling assets to accelerate gain or loss.  For the complete Orrick alert, please click here.

Russian Note Trustee (a Bondholders Representative) and Other Changes in Corporate Bond Regulations

This Orrick law alert relates to the changes made in the Russian securities law by Federal Law No. 210-FZ dated July 23 (On Amendments to the Federal Law on the Securities Market and to Certain Russian Laws and Regulations).  Specifically, said Law has introduced the concept of a bondholders’ representative and expanded the concept of a general meeting of bondholders.  The new amendments also set out in more detail how to redeem or repurchase Russian bonds before maturity.  Orrick has actively assisted the Association of Russian Regional Banks in the drafting and promotion of the new law.  For the complete alert, please click here.

SEC Lifts Ban on General Solicitation, Adopts “Bad Actor” Disqualification Rules and Proposes Amendments to Form D Filings

On April 5, 2012, the Jumpstart Our Business Startups Act (the JOBS Act) was enacted.  Title II of the JOBS Act mandated the Securities and Exchange Commission to amend applicable rules within 90 days of its enactment (i.e., July 5, 2012) in order to eliminate the prohibitions against general solicitation or general advertising in Rule 506 of Regulation D under the Securities Act of 1933, as amended, and under Rule 144A under the Securities Act.  In August 2012, the Commission proposed a new Rule 506(c) and an amendment to Rule 144A to implement Title II.  During an open meeting on July 10, 2013, the Commission issued two releases (33-9414 (bad actor) and 33-9415 (Rule 506, Rule 144A and Form D)) which adopted new rules.  For more information on the adopted rules, please click here.

Commentary: Five Lessons from the Municipal Derivatives Litigation Front

Pre-financial crisis, interest rate derivatives were widely recognized as a valuable part of the municipal issuer’s financial toolkit.  Post-crisis, they have been a thorn in the side of many issuers, resulting in expensive litigation with failed swap providers – most notably the Lehman and Ambac derivatives trading subsidiaries – and public criticism of municipal issuers said to have fallen prey to more sophisticated providers.  There are several lessons to be learned from the recent spate of litigation, which Orrick covered in an article recently published in The Bond Buyer.

Shareholders Allege Improper Takeover of Fannie and Freddie by the Government

Can shareholders of a government-sponsored enterprise successfully challenge the constitutionality of a government takeover of the entity?  Shareholders of Fannie Mae and Freddie Mac will try to do so in a $41 billion class action filed against the United States in the Court of Federal Claims on June 10.  Plaintiffs allege that even though the Federal Housing Finance Authority’s 2008 takeover of the mortgage giants benefited the nation as a whole, it harmed the companies’ shareholders and violated their constitutionally protected private ownership rights.  For more information on this suit and to visit our Securities Litigation blog, please click here.

SDNY Holds Trustee Cannot Evade Section 546(g) Safe Harbor

On June 11, Southern District of New York Judge Jed Rakoff dismissed the complaint of the Trustee for the SemGroup estate seeking to avoid a novation made to Barclays pre-bankruptcy under a swap agreement.  The Court held that the pre-bankruptcy transaction constituted a safe harbored transfer made in connection with a swap agreement and thus could not be avoided by the estate.  This case is one of a number in recent years that treats the safe harbors, and particularly the section 546 safe harbors, as broadly protective of non-debtor transferees in financial transactions.  For more information, please click here.

SEC Proposes Legislation to Reform Money Market Funds

Since the 2008 financial crisis, reforming money market funds has been the subject of high drama and intense scrutiny on Capitol Hill.  Advocates for reform finally got their long awaited breakthrough last Wednesday, June 5, when the Securities and Exchange Commission voted unanimously to propose legislation that would reform money market funds.  For more information and to visit our Securities Litigation blog, please click here.