orrick powerpoint template january 17, 2001 name of presenter kellogg school of management...
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Orrick PowerPoint Template
January 17, 2001Name of PresenterKellogg School of Management
Securitization 2003 Spring Colloquium
Cam CowanMay 12, 2003
Legal Issues in Securitization: What You Don’t Know
Could Hurt You
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Agenda
• Hypothetical Transaction
• Structuring the Transaction
• Selling the Transaction
-
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•Mortgages
•Credit Card Receivables
•Auto Loan Receivables
•Student Loans
•Corporate Loans
•Tobacco Settlement Payments
•Record Sales
•And maybe . . .
Source of Payment
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Cubs Ticket Sales
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Ticket Sale Securitization
There must be a reasonable predictability of a consistent payment stream
• Nature of Obligors• Nature of Originator• Nature of Receivables
Confirming predictability of cash flow
• Attendance statistics, season ticket holders, ticket prices, continuity
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Do the Chicago Cubs ticket sales meet the requirements?
• Average annual tickets sold (past 20 years): 2.5 million
• Current average ticket price: $30
• Current average annual ticket revenues: $75 million
• Last time won World Series: 1908
Ticket Sale Securitization
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• Bankruptcy Law
• Commercial Law
• Tax Law
• Securities Law
• [Bank Regulatory]
Chicago Cubs Ticket SalesStructuring the Transaction
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Chicago National League Ball Club, Inc.“Owner and Servicer”
Chicago Cubs LLC“Transferor”
Chicago Cubs Master Ticket Trust
Investors
Structure Summary
Receivables $
Receivables
$Class A, Class B and Class C Notes
$
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Chicago Cubs Ticket SalesStructuring the Transaction
The Parties:
• “Obligors” – The fans• Originator/Obligor – The Chicago Cubs• Servicer – The Chicago Cubs• Trustee – A financial institution• Credit Enhancer – Subordinated class of securities• Rating Agencies – S&P, Moody’s, Fitch• Underwriter – Investment bank• Investors – Pension fund, insurance company, financial institution• Counsel – Mayer Brown Rowe & Maw
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Bankruptcy Law -- Make the SPV “Bankruptcy-Remote”
• Protecting the SPV from voluntary and involuntary bankruptcy
• Protecting the SPV from substantive consolidation
• Creating a “true sale” of receivables
Chicago Cubs Ticket SalesStructuring the Transaction
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Commercial Law – Perfect the Transfer
• Creating the security interest
• Perfecting the security interest
• Giving the security interest priority
Chicago Cubs Ticket SalesStructuring the Transaction
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Tax Law –- Avoid Additional Taxation
• Taxation of the Originator
• Taxation of the SPV
• Taxation of the Investors
Chicago Cubs Ticket SalesStructuring the Transaction
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• Applies to Investment Companies – entities that are principally engaged in owning or holding “securities”
• “Security” is broadly defined
• Compliance is costly and burdensome
• Find an exemption: Sections 3(c)(1), 3(c)(5), 3(c)(7); Rule 3a-7
Investment Company Act of 1940 -– Avoid It
Chicago Cubs Ticket SalesStructuring the Transaction
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• Securities Act of 1933
• Securities Exchange Act of 1934
• ERISA
• Offering the Securities
• The Closing
Chicago Cubs Ticket SalesSelling the Transaction
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The Securities Act of 1933 –- Comply with It
• Requires offers and sales of securities to be registered, unless exemption available
• Restricts offering communications
-- Pre-filing period-- Waiting period-- Post-effective period
• Exemptions from Registration -- Regulation D, Rule 144A, Regulation S
Chicago Cubs Ticket SalesSelling the Transaction
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The Securities Act of 1933 –- Comply with It
• “Prospectus” disclosure requirements
• Liability for false registration statement
-- Section 11 liability-- Due diligence defense
[And “Blue Sky” Laws]
Chicago Cubs Ticket SalesSelling the Transaction
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The Securities Exchange Act of 1934 -- Don’t Forget It
• Anti-fraud provisions – Rule 10(b)(5)
• Periodic reporting requirements
• Sarbanes-Oxley requirements
Chicago Cubs Ticket SalesSelling the Transaction
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ERISA -- Get Help
• Pension Plan investors
• Prohibited Transactions
-- Between Plan and party in interest-- Between Issuer and party in interest
• Exemptions
• Debt securities
Chicago Cubs Ticket SalesSelling the Transaction
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Communications –- Be Careful
• Prospectus defined in Section 2(a)(10) of the ‘33 Act:
• Provides investors with material information:-- Description of the notes
-- How, when, and how much principal and interest will be paid -- Information about the Chicago Cubs
-- Risk factors:•Baseball strike•Loss of Sammy Sosa•Poor team performance•Prolonged bad weather•Beer prohibition•Damage to Wrigley Field
Chicago Cubs Ticket SalesSelling the Securities
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Communications –- Be Careful
• Regulation FD (Fair Disclosure)
• Addresses selective disclosure of material, non- public information by issuers
• Requires issuer to make concurrent, public disclosure of material, non-public
information
Chicago Cubs Ticket SalesSelling the Securities
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Communications –- Be Careful
• Electronic Roadshows
-- Roadshows are allowed to be performed over the Internet
-- Transmission cannot be a “prospectus” -- Registered offerings -- Rule 144A offerings -- Regulation S offerings
Chicago Cubs Ticket SalesSelling the Securities
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The Closing -- Bring the Champagne
• Documents Reviewed and Executed
• Opinions Delivered-- authority, enforceability, no conflicts, etc.-- commercial law opinions-- true sale/non-consolidation opinions-- tax opinions-- securities law opinions-- 10(b)(5) opinion
• Money Wired and Bonds Released-- The Chicago Cubs receive the proceeds of the sale and the
investors receive their securities
Chicago Cubs Ticket SalesSelling the Securities
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The Chicago Cubs will now have money to pay its players, causing them to express their gratitude . . . .
Chicago Cubs Ticket SalesEverybody is Happy
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Chicago Cubs Ticket SalesEverybody is Happy
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Orrick PowerPoint Template
January 17, 2001Name of PresenterKellogg School of Management
Securitization 2003 Spring Colloquium
Cam CowanMay 12, 2003
Legal Issues in Securitization: What You Don’t Know
Could Hurt You