Find Lawyers in Toronto, Ontario for Structured Finance Law

Structured finance law practice broadly includes transactions that have both a financing component and legal structures designed to isolate assets from other creditors for the benefit of investors. The most typical example would be a securitization involving the “true sale” of a cash flow generating asset such as loan receivables to a special purpose entity (or SPE) funded by one or more investors. The benefit to investors is to have direct recourse to the assets sold to the SPE without the need for the enforcement of security and less risk associated with a seller insolvency. Often a credit rating agency will be asked to provide credit rating to the debt issued by the SPE, which is typically higher than the credit rating that has been or could be assigned to the seller and is often the highest possible rating (with the benefit of excess collateral sold or other credit enhancement provided to support the debt). The benefit for the asset seller is that lower risk translates into more attractive funding costs, as well as more diversified funding sources for its business.

Assets commonly securitized in the Canadian market include personal and commercial loans, credit card and credit line receivables, residential and commercial mortgages (RMBS and CMBS), automobile and equipment loans and leases, and trade receivables. Most rated transactions are funded by multi-seller conduits sponsored by Canadian banks that issue short-term commercial paper backed by liquidity facilities to provide for payment of the commercial paper if it matures before the assets are collected and the conduit is unable to issue new commercial paper. A smaller component of the rated securitization market is funded with amortizing or bullet pay term debt, issued in private placements or occasionally under prospectus. A significant market also exists for private transactions where a single investor or small number of investors commits to buy all of the SPE’s debt. Mismatches between the currency, interest rate, and tenor of the debt and the currency, interest rate, and tenor of the underlying assets is often addressed by swap transactions with market swap providers.

Structured finance lawyers are typically specialists but draw on many other legal disciplines, such as tax, securities, secured lending and real estate, consumer protection, privacy, and bankruptcy. Legal structures can range from simple “true sales” to more complicated derivative and synthetic structures, although the latter have been less common in the wake of the financial crisis of 2007 and 2008. SPEs can take the form of trusts, corporations, ULCs, and partnerships, provided that they acquire the assets in a true sale (which would not be challengeable in a bankruptcy of the seller) and provided they would not be ‘substantively consolidated’ with the seller in an insolvency. Most structured finance transactions involve lengthy reasoned legal opinions to address the degree to which these risks are present in the structure. Clients in structured finance transactions include sellers, SPEs, bank sponsors, underwriters, investors, third party asset servicers and other service providers, rating agencies, swap counterparties, and credit enhancement providers.