Being a securitization attorney isn't as easy as it used to be. As backlash from the media due to the Enron Corp. debacle continues to cast a pall of undeserved distrust and skepticism over the securitization markets - and as regulators, in response, propose sweeping accounting changes - attorneys are now finding themselves with a multitude of of added burdens that weren't there a year ago.
For example, in addition to being a little more gunshy talking to the press than they used to be, structured finance lawyers are also finding themselves spending more and more time this year evaluating the potential ramifications of substantive accounting changes that may come down the pike, such as FASB's initiative to consolidate SPEs and proposed changes to how multiseller ABCP conduits are treated.
Moreover, because the public still has qualms about anything related to SPEs, securitization attorneys have had to devote a lot more lead time to a deal before getting it under way. "Lawyers have had to spend much more time talking to issuers' accountants, as well as trying to evaluate restructuring changes and accounting issues," says Edward DeSear, the head of the structured finance group at Orrick, Herrington & Sutcliffe LLP, which ranked as the No. 1 legal advisor for ABS and MBS issuers in Thomson Financial's first-quarter 2002 league tables, released last week (see p. 19).
But despite somewhat of a chilling effect brought on by the controversy, and a slight dampening impact on activity, the first quarter was quite strong for securitization practices, and the second quarter is expected to be even more frenetic. "This has been the busiest quarter in my entire career," said DeSear, who mostly focuses on one-off deals. "It has been hot to crazy this quarter - I've been working like a first-year associate."
Indeed, Orrick has had a successful run this past quarter representing issuers on both the mortgage and asset-backed side. With big-name residential mortgage clients such as Washington Mutual, PNC and RFC, and the benefits of lower interest rates, stronger refis and new home sales, the firm topped $12.4 billion in RMBS transactions, according to Thomson Financial. On the asset-backed side, Orrick completed a lawyer fee tobacco deal in December and another in February, as well as a mutual fund fee securitization and the recent CRISP transaction, which involved the innovative use of a credit card loss index.
Still, there has been a definite slowdown in CDO activity and a market decrease in ABCP, related to proposed regulatory changes. "Our success in commercial mortgages made up for the downturn in CDOs," DeSear said. "Additionally, we've done very little of the 3% to 10% equity' type of deals involved in CDO analysis; most of our deals are under FAS 140." Going forward, Orrick is working on more restructuring-related transactions having to do with the credit-related problems with certain clients.
Like most securitization attorneys nowadays, DeSear is hoping that there won't be further irrational reaction to Enron. "Most of all, we are concerned about people misunderstanding what we all do," he said. "While securitization is not yet under siege, there is still the possibility of overly broad regulations or of benign programs becoming suspect."