Finance & Bankruptcy Law Blog

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On June 9, the California Office of Administrative Law (OAL) approved the Department of Financial Protection and Innovation’s (DFPI) proposed commercial financing disclosure regulations issued pursuant to SB 1235. The regulations will become effective on December 9, 2022, and the final regulatory text can be found here
Continue Reading California Approves Commercial Financing Disclosure Regulations

The practice of appointing one or more independent directors to the boards of distressed companies has not only proliferated in recent years, but has become the subject of increasing controversy. In this episode of the Restructure THIS! podcast, John Dubel discusses, among other things, the proper role of an independent director in a restructuring and weighs in on whether he believes the current independent director framework in chapter 11 is broken. In doing so, John addresses some of the most significant criticisms that have been levied against independent directors, including that independent directors often lack disinterestedness and are nothing more
Continue Reading The Role of the Independent Director in a Restructuring

During times of corporate uncertainty, the company’s message to customers, vendors and employees can either instill confidence or foster anxiety. This holds true more than ever in the digital and social media era. In a chapter 11 scenario, then, engaging with, rather than dodging, press calls may be the preferred approach. This provides the opportunity to craft the message as well as address misinformation from leaks.
Continue Reading Communicating Distress in the Digital Era

Members of Sheppard Mullin’s Finance & Bankruptcy team recently co-authored an article entitled “When the Other Shoe Drops: Drivers of the Next Restructuring Cycle” with experts from leading restructuring advisory firm M3 Partners for the January 2022 issue of the American Bankruptcy Institute Journal. The article discusses the confluence of factors that Sheppard Mullin and M3 believe will contribute to an uptick in restructuring activity in the future, including the eventual tightening of credit markets and a variety of pre-pandemic and post-pandemic headwinds.
Continue Reading Sheppard Mullin and M3 Partners Weigh In on the Potential Drivers of the Next Restructuring Cycle for the ABI Journal

As of November 1, 2021, dealers in security-based swaps (“SBS”) whose dealing activity exceeds certain de minimis thresholds (e.g., gross notional amount of $3 billion for credit default SBS, $150 million for other SBS, and $25 million for SBS where the counterparty is a special entity) are required to register with the SEC as a security-based swap dealer  (“SBSD”) and to comply with the SEC’s regulations applicable to SBS.[1]  Many dealers exceeded these thresholds and filed for registration on or prior to November 1.  Other dealers who exceed these thresholds later will be required to register at a future
Continue Reading Security-Based Swap Rules for End-Users

The National Indian Gaming Commission (“NIGC”) issued guidance this week for tribes and tribal lenders who submit loan documents to the NIGC for a so-called “declination letter.”  Bulletin No. 2021-4, “Submission of Loan Documents and Financing Documents for Review,” summarizes criteria the agency has developed in the last decade for determining whether loan documents constitute “management” contracts, which under federal law must be approved by the NIGC Chairman or they are void.  The Bulletin states that while the Office of General Counsel will continue to review loan documents and issue opinions as to whether the documents provide the lender with
Continue Reading NIGC Issues New Guidance on Financing Document Reviews and Declination Letters

Most restructuring professionals will tell you that there is no “typical” restructuring. That is absolutely true. Every financially distressed business is different and the character and direction of its restructuring will be highly dependent upon, among others, its capital structure, its liquidity profile, and the level of support it can build for its reorganization among key stakeholder bodies. Nevertheless, there are some important similarities in the way that any company should initially address a distressed situation. We discuss below a variety of key tasks, or “commandments,” that we recommend any company should undertake as soon as it anticipates possible financial
Continue Reading Seven Commandments for the Financially Distressed Company

In April 2021, House Financial Services Committee Chair Maxine Waters (D-Calif.) introduced H.R. 2547, the “Comprehensive Debt Collection Improvement Act.” This article examines the bill’s proposed reforms, takes a closer look at a few of the key provisions related to nonjudicial foreclosure, student loan and servicemember debt-collection practices, and considers its prospects for passage in the Senate. With respect to nonjudicial foreclosures, the legislation seeks to amend the definition of “debt collector” under the FDCPA to include entities that conduct non judicial foreclosures. As for student loans, the bill proposes an amendment that would slightly expand private student loan protections
Continue Reading Debt-Collection Reforms Draw Congressional Focus Post-COVID

As expected, on July 28, 2021, the Alternative Reference Rates Committee (ARRC) formally recommended the CME’s SOFR Term Rate.  The SOFR Term Rate is known in advance of the related interest period and provides an indicative, forward-looking measurement of SOFR based on market expectations implied from leading derivatives markets.  In this respect, the SOFR Term Rate functions in a manner similar to today’s LIBOR rates.  In contrast, the Daily Simple SOFR or Daily Compounded SOFR used for interest periods beyond overnight can only be determined in arrears.  The SOFR Term Rate thus facilitates in a significant way the transition away
Continue Reading ARRC Formally Recommends Term SOFR

This past Monday, July 26, marked passage of the most recent major milestone in the replacement of LIBOR as the benchmark USD interest rate.  Following the recommendation of the CFTC’s Market Risk Advisory Committee (MRAC) Interest Rate Benchmark Reform Subcommittee, on July 26, 2021 interdealer brokers replaced trading in LIBOR linear swaps with SOFR linear swaps.  This switch is a precursor to the recommendation of SOFR term rates.  The switch does not apply to trades between dealers and their non-dealer customers.
Continue Reading Latest Milestone in LIBOR Replacement Passed

On July 13, the Federal Reserve, FDIC, and OCC proposed risk management guidance to help banking organizations manage risks related to third-party relationships, including relationships with vendors, FinTech companies, affiliates, and the banking organizations’ holding companies.  The proposal is based on existing but disparate third-party risk management guidance from the three prudential regulators, and is intended to promote consistency across the banking agencies.  If finalized, it will replace the guidance that each agency has released independently.
Continue Reading Federal Agencies Request Comments on Risk Management Guidance for Third-Party Relationships

On July 12, the CFPB issued a consent order against a FinTech company for facilitating point of sale financing activities without authorization from consumers.  The consent order requires the company to pay up to approximately $9 million in redress to impacted consumers and a $2.5 million civil money penalty.
Continue Reading CFPB Takes Action Against FinTech Company for Originating Unauthorized Loans

On July 1, the Federal Housing Finance Agency (FHFA) released a Policy Statement on its commitment to comprehensive fair lending oversight of Fannie Mae, Freddie Mac, and the Federal Home Loan Banks (collectively, “regulated entities”).  The FHFA addressed its position on:  (i) monitoring and information gathering; (ii) supervisory examinations; and (iii) administrative enforcement related to the Equal Credit Opportunity Act, the Fair Housing Act, and the Federal Housing Enterprises Financial Safety and Soundness Act.  The FHFA added that the statement operates as a “foundation for future interpretations by the agency and its regulated entities.”  Comments on the policy statement are
Continue Reading FHFA Releases Policy Statement On Fair Lending

On July 6, the CFPB posted a blog titled, “Should you buy now and pay later?” describing how buy now pay later (BNPL) deferred payment options work, and the benefits and risks that come with BNPL.  Generally, if a consumer selects the BNPL option at an online checkout, “the purchase is . . . split into a payment schedule – typically four fixed payments made bi-weekly or monthly until the balance is paid in full.”  The CFPB points out that transaction approval takes minutes, with no interest, finance charges, or hard credit inquiries.
Continue Reading CFPB Blogs About Buy Now Pay Later

At the recent FDIC conference, “Fintech: A Bridge to Economic Inclusion,” FDIC Chairman Jelena McWilliams remarked that while the proportion of U.S. households that were banked in 2019 was 94.6 percent, 7 million households still reported no banking relationship.  She also noted that “the rates for Black and Hispanic households who do not have a checking or savings account at a bank remain substantially higher than the overall ‘unbanked’ rate.”  Referencing her personal challenges in establishing credit as a young immigrant to the United States 30 years ago, McWilliams discussed technology’s role in creating and facilitating a more inclusive financial
Continue Reading FDIC Chairman Discusses FinTech and Bank Innovation