(This article appears courtesy of International Financial Law Review, sign up for a free trial on their site)
Rachel Evans
Staff writer
"When markets go down hill, it's a lawyer's waking nightmare and a wet dream at the same time," says one structured finance partner in London. "You're terrified that your documentation won't hold up but you're also secretly thrilled that all that backroom drafting will finally get some attention."
Unfortunately some of that backroom drafting, particularly in structured finance, is rather unclear. Investors, issuers, insurers, trustees and receivers need help interpreting it. In the first three months of 2008, 170 claims relating to sub-prime were filed in the US at federal level, according to Navigant Consulting. To put this in perspective, only slightly more cases – 181 – were filed in the whole second half of 2007. The rate of filings is clearly accelerating. The number of cases related to sub-prime has already surpassed half that of the savings and loans crisis in the late eighties and early nineties. Then, the Resolution Trust Corporation viewed 559 cases over several years. From January 2007 to March 2008, the US federal courts saw 448 sub-prime cases.
Plaintiffs want clarity on matters such as priority of payment – the waterfall – and events of default.