Amy Pasacreta

Of Counsel

New York

apasacreta@orrick.com

Read full biography at www.orrick.com
Amy Pasacreta is of counsel in Orrick’s Restructuring Group.

She advises investment banks, broker-dealers, hedge funds and other financial institutions on legal issues related to the purchase and sale of domestic and international par and distressed assets, including bilateral and syndicated loans, loan participations and derivative structured products. Amy also works with clients to structure deals involving preference, administrative and unsecured trade claims and assists clients in enforcing their rights in the bankruptcy case after the claims are purchased. She represents buy side and sell side clients in connection with private transfers of debt and equity securities, special situations investments, and transactional matters relative to in-court and out-of-court restructurings. Amy also has experience representing lenders on secured and unsecured financing transactions across a wide array of industries, including shipping, airline, energy and infrastructure.

Amy is a consensus builder with industry knowledge and working relationships with all major market players. She has extensive experience in the preparation and negotiation of bespoke documents under the LSTA and LMA regimes, and is routinely involved with cross-border transactions throughout Europe, Asia, Latin America and the United States. A seasoned practitioner, she coordinates efforts and resources across the firm to ensure transactions are handled efficiently.

Amy is an active member of the industry’s loan associations and provides training for in house counsel and operations teams at financial institutions.

Posts by: Amy Pasacreta

COVID-19-Related Defaults in European Leveraged Loans Could Create Opportunities for Distressed Investors

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Since the last financial crisis, borrowers and private equity sponsors have cut distressed investors out of most European leveraged loan deals. According to Reorg Debt Explained about 66% of European leveraged loans in 2019 restricted transfers to distressed investors.[1] But the recent economic turmoil created by the COVID-19 pandemic could create opportunities for distressed investors to return to the market. Fitch Ratings recently forecast a 4% default rate for European leveraged loans in 2020 and a 7% default rate in 2020.[2] In a severe downside scenario, Fitch projected that default rates could reach as high as 14% next year. In some European leveraged loan deals, the transfer restrictions that have kept distressed investors out of lending syndicates may fall away if events of default (or certain specific events of default) occur and continue. Read our key takeaways here.

Secondary Trading As Usual?

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In a very short time, the COVID-19 pandemic has spread frightening levels of uncertainty all around the world. While many schools, businesses, and houses of worship have closed, the financial markets remain open. Like other markets, the secondary market for syndicated loans has experienced stomach-churning volatility and steep declines in asset prices in recent weeks. If you aren’t thinking about how COVID-19 could affect liquidity and settlements, you should be. Fortunately, the standard trading documents published by the Loan Syndications & Trading Association (the “LSTA”) already contain important concepts and tools aimed at promoting liquidity and pushing trades toward settlement, even during times as uncertain as these.

Click here for a brief refresher on some of the provisions that could prove critical in the months ahead.

New LSTA Par Confirm Penalizes Buyers for Settlement Delays

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In an effort to reduce settlement times, the Loan Syndications and Trading Association (the “LSTA”) recently revised its standard par loan trading documents to penalize buyers who take too long to settle. Beginning September 1, 2016, buyers who fail to fulfill their obligations to timely settle par loan trades will forfeit the right to receive interest that accrues prior to the settlement date. The changes do not apply to loans trading on distressed documents.

The LSTA’s revisions represent the trade group’s most aggressive step to combat settlement delays. The revisions are also the most consequential changes to the LSTA’s standard par trading documents in years.

Under the current version of the LSTA’s Standard Terms and Conditions for Par/Near Par Trade Confirmations (the “Standard Terms”), buyers are automatically compensated for interest that accrues on a loan during the period beginning on the seventh business day after the trade date up through the settlement date (“Delayed Compensation”). Starting on September 1, 2016, this provision will no longer be automatic. Instead, par loan buyers will only be entitled to Delayed Compensation if they satisfy several new requirements, including paying the purchase price to the Seller in accordance with specific timing requirements (the “Delayed Compensation Prerequisites”). The LSTA believes that the Delayed Compensation Prerequisites will create a new sense of urgency for buyers to close trades and discourage buyers from tying up sellers’ balance sheets. READ MORE →

Not So Fast – Supreme Court Holds Prepetition Fraudulent Transfer Precludes Post-Petition Discharge in Husky International

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One of the goals of the Bankruptcy Code is to provide a debtor with a fresh start. The discharge of prepetition debts at the conclusion of a bankruptcy case is one of the most important ways to attain this fresh start.  On May 16, 2016, the Supreme Court made it harder for debtors to obtain a fresh start by broadening an exception to discharge.

Section 523(a)(2)(A) of the Bankruptcy Code provides that an individual debtor is not discharged from any debt “for money, property [or] services … to the extent obtained by false pretenses, a false representation, or actual fraud[.]” Circuits split as to whether actual fraud under Section 523(a)(2)(A) requires an affirmative misrepresentation; the Fifth Circuit had held that this was a necessary element to prevent discharge, but the Seventh Circuit had held that “actual fraud” encompassed a broader range of behaviors.

The Supreme Court resolved this split, rejecting the Fifth Circuit’s narrow interpretation and finding that the term “actual fraud” does not need to include an affirmative misrepresentation by the debtor. With this broader reading, debtors will be unable to discharge prepetition debts where there is evidence that they inappropriately siphoned of their assets prior to filing for bankruptcy. Husky Int’l Elecs., Inc. v. Ritz, No. 15-145, 2016 WL 2842452 (U.S. May 16, 2016). READ MORE →

Litigation Finance: A Brief History of a Growing Industry

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Litigation costs money.

Litigation finance can provide the cash a plaintiff needs to prevail in court. Plaintiffs holding valid—and potentially quite valuable—claims sometimes do not have the resources to initiate a lawsuit or to see one through to a favorable resolution. Rules of professional ethics generally prohibit lawyers from providing clients with financial assistance.  A contingency fee arrangement with a lawyer can help reduce a plaintiff’s out-of-pocket legal costs, but such arrangements are not always feasible. Even when they are, the lawyer may not have enough cash available to fully fund the costs of litigation.

Litigation financing (also known as professional funding, settlement funding, third-party funding, or legal funding) is the process by which plaintiffs can finance their litigation or other legal costs through a third party. This third party provides a nonrecourse cash advance to the plaintiff in exchange for a percentage share of the judgment or settlement. Litigation finance is used to fund all types of cases, including commercial litigation, intellectual property disputes, personal injury cases, class actions, whistleblower suits, and even high-profile divorce cases. And funders invest in early stage cases, cases pending appeal, and even finished cases.

Many investors, including big banks, participate in this sector. There are also firms dedicated solely to investment in litigations. These firms now invest about $1 billion a year, and the industry seems to be growing. Topping $1 Billion Mark, Big Litigation Funder Gets Bigger, Julie Triedman, The Am Law Daily, January 6, 2016. The industry’s largest investor, Chicago-based Gerchen Keller, was formed in 2013 with $100 million in capital and now has more than $1.4 billion in assets under management.  In many ways, the firm operates like a typical hedge fund. It maintains several separate funds that invest private capital in portfolios of assets selected by the firms’ managers. The major difference between it and more traditional hedge funds is that Gerchen Keller invests only in this new asset class—namely, interests in lawsuits.  In addition to investments by big banks and funds, accredited investors with as little as $2,500 to invest can get a piece of the action.  Specifically, LexShares, a crowdsourcing website, matches third-party funders meeting certain qualifications with litigants in need of funding.

The foregoing demonstrates that lawsuit investment is a new and burgeoning asset class. In spite of this, there is no uniform regulation.  Congress and state legislatures are looking to change this situation.

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Solus v. Perry: Case Update

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Since May, we’ve followed Solus v. Perry, a New York County Supreme Court case originally filed in July of 2012. The case centered around whether Perry entered into a binding oral agreement to sell Solus a participation interest in a $1.6 billion claim against Bernie Madoff’s bankruptcy estate. The parties agreed on a price and some other material terms during a phone call in April of 2012 but never signed a written agreement. In its pleadings, Perry claimed that because its trader noted that the trade was “subject to documentation,” no agreement was ever formed.

Last Monday, the parties filed a stipulation discontinuing the case with prejudice.

During oral arguments on the parties’ summary judgment motions last year, Judge Saliann Scarpulla noted that several issues with meaningful implications for the distressed trading market would need to be resolved before summary judgment could be entered, including: (1) whether there is an industry custom regarding the binding nature of oral contracts for unsecured claim trades; (2) whether an agreement that a trade is subject to documentation means there is no binding contract; and (3) whether the need for consent of a third party means there is no binding contract if such consent is not obtained.

The Solus v. Perry case will not produce an opinion resolving these issues. However, market participants should take note that even in New York, these issues are still considered open questions. Therefore, we reiterate the conclusions from our May article:

  • When possible, get a trade confirmation signed immediately after entering into an oral trade.
  • If an executed trade confirmation is not forthcoming, confirm that your counterparty is familiar with the LSTA standard terms or other relevant industry customs and intends to work within those guidelines.
  • Be proactive any time a counterparty delivers a communication during or after trade time that could be interpreted as evidence that a binding agreement does not already exist.
  • Exercise special care when dealing with counterparties and people with whom you do not typically trade.

Privacy Policies and the Sale of Corporate Assets: It pays to plan ahead to preserve the value of your data assets

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Personal data is a valuable corporate asset.  At times, the personal information collected from customers (such as email address, mailing address, phone number, etc.) can be a company’s most valuable asset.  Unfortunately, when a company attempts to sell this asset, it can find the value of the data significantly diminished due to promises made in a privacy policy the company implemented years before it ever contemplated such a sale.

A company’s privacy policy sets forth the company’s promises to its consumers as to how it will collect, store, maintain, and share the consumers’ personal data.  In an attempt to appeal to customer privacy concerns, it is common for a company to proclaim in such policies:

“We share your personal data only in the ways described in this policy,”

or

“We care about our customers and we will never sell or share your personal data.”

Most companies include these statements to highlight their promise not to capitalize on a consumer’s data by selling to third party marketers.  However, many companies do not realize that statements such as these could also severely restrict the company’s ability to sell data as a corporate asset in a company sale, merger, bankruptcy, or similar corporate transaction, unless there is also a clear statement within the policy which permits data to be transferred during the course of such events.

There are steps a company can take leading up to the corporate transaction to smooth the transfer of customer data, such as updating its privacy policy, providing additional notice to consumers, requesting opt-out or opt-in consent to the revised policy and/or the data sale.  Companies that fail to take these steps and attempt to transfer data in a manner that conflicts with promises made in its privacy policy may face regulatory scrutiny or litigation, both of which would ultimately diminish the value of their data assets in any eventual sale.

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Solus v. Perry: Case Update

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In May, we wrote about a number of recent cases addressing the enforceability of oral agreements in syndicated loan and bankruptcy claims trading. One of those cases, Solus v. Perry, is still active at the trial court level in New York. Last month, the court entered an order denying both parties’ motions for summary judgment.

At issue in Solus v. Perry is whether the parties agreed to all of the material terms of a transaction in which Solus would purchase Perry’s participation interests in claims against the bankruptcy estate of Ponzi schemester Bernie Madoff’s investment firm. Although Solus and Perry never signed a written contract, Solus argues that the parties agreed to all of the material terms necessary to create a binding oral agreement under New York law (i.e., asset, quantity, and price) in recorded telephone conversations, emails, and Bloomberg messages.  Perry contends that no agreement was formed because certain other terms (which Perry characterizes as material) were left open, including how litigation risks and fees would be allocated and whether Perry would have to indemnify Solus for any potential damages resulting from Perry’s bad acts.

In its decision and order, the court concluded that the evidence submitted failed to resolve all material factual issues in favor of either party.  Specifically, the following two issues must be determined before summary judgment can be entered—1) which terms were material to the trade, and 2) whether the parties agreed to all of those material terms.

A pretrial conference is scheduled for October 7, 2015. We will keep you posted.

Decoding the Code: Reclamation Under Section 546(c) of the Bankruptcy Code

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This is the second post in our “Decoding the Code” Series.  The Series intends to discuss various sections of the Bankruptcy Code in a clear and easy to understand manner.  Today’s post addresses enforcement of reclamation rights in a bankruptcy case.

Let’s decode the basics:

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Enforceability of Oral Contracts for Loan and Claim Trades

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The Loan Syndications and Trading Association (the “LSTA”) scored a major victory in 2002 when New York adopted LSTA-sponsored legislation designed to make oral agreements to trade bank loans and claims arising from business debts legally binding. Since then, participants in both the syndicated loan market and the claims trading market have come to rely upon the idea that trades entered over the phone are binding, so long as the parties agreed to the material terms of the trade.

A 2014 Fifth Circuit Court of Appeals decision calls this assumption into question for loan trading, and a case that is currently pending in New York state court could extend the uncertainty to business debt claim trades as well.

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