Rarely would a panel of four lawyers talking about securitization be considered lively, but last week's Sunset Seminar on offering reform hosted by the American Securitization Forum, managed to be just that. The panel, moderated by Thacher Proffitt & Wood partner Stephen Kudenholdt, featured Richard Careaga, senior counsel for Washington Mutual, Chad Eisenberger, director and counsel for UBS and Jordan Schwartz, partner Cadwalader, Wickersham & Taft.
The panel discussed the Securities & Exchange Commission's recently published reforms to the securities offering process, a 468 page document that still has yet to be digested by a majority of industry participants, and how those reforms will affect structured finance. Kudenholdt kicked off the discussion by announcing that he had bet his fellow panelists that the first of them to refer to the 468-page document would owe the others a beer at the reception afterward.
Things turned slightly more serious as the panel discussed the pros and cons of filing free-writing prospectuses or ABS informational and computational material in advance of deals. "If I was an issuer I would be excited about going into the free-writing path," said Schwartz. He noted that Rule 159 applied no matter which path underwriters choose, but the SEC is actually encouraging the industry to take the free-writing option.
The panel also focused largely on 12(a)(2) liability as assigned in Rule 159 to offering materials given to investors up until the time of a contract of sale. The standard is that those materials cannot have material errors or omissions that make any other offering information the investor has false. The standard is not changing, but what is changing is that the underwriter becomes liable for all of the information an investor has in hand until the point of sale.
"The way you avoid liability is to have the trades done on adequate documents at the time of the investment decision," said Kuenholdt. "The lesson is, be more careful with what you send in the beginning."
Underwriters will have the opportunity to terminate and re-write sale contracts if they receive anything they feel may change materially information that was already disseminated to investors. The panelists agreed this could cause a number of difficult scenarios, such as dealers having to decide whether a piece of information is worth terminating a contract over.
Eisenberg even highlighted the potential craziness that could ensue if underwriters have to send out notices that can terminate prior contracts if new information becomes available.
All were winners in Kudenholdt's bet, however, as there was an open bar after the conference, although Tom Deutsch, associate director with ASF, did offer to pick up the tab.
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