By Michelle DreyerManaging director, Independent Director Services and Default Administration
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In this article, our leading subject matter expert, Michelle Dreyer, gives her thoughts on the reasons why growth in the securitization market is opening up opportunities for bankruptcy remote entities (BRE), offering insights into its evolution, its upcoming challenges, and its opportunities for independent directors (ID).
Reason #1: Shoring up the ID role
Although the first mortgage backed security was issued in 1968 and asset backed securities were introduced in the mid-80s, lenders and rating agencies began requiring borrowers to be “bankrupty remote entities” in the early 90s, including the requirement for borrowers to appoint independent directors. At the start, independent directors could be virtually anyone who was unaffiliated with the borrower, regardless of their qualifications.
Today, many lenders and rating agencies require professional independent directors be appointed by a nationally recognized service provider. Some rating agencies actually define the level of expertise, with more experienced independent directors a prerequisite for larger, more complex deals.
Reason #2: Casting a wider net
Historically, BREs were almost exclusively used in commercial real estate financing transactions, with the majority pooled as commercial mortgage-backed securities (CMBS). However, the market for BREs continues to expand, driven by new emerging asset classes (such as esoteric ABS), accounting for a greater portion of transactions requiring independent directors. At CSC, our client base was primarily real estate asset transactions, however, it’s currently made up of a variety of asset-backed transactions, including cargo ship containers, royalty streams for movie rights, and green energy.
Reason #3: What the future holds
These are uncertain times, possibly the most uncertain of our lifetime. It’s hard to know how markets will react to the current COVID-19 pandemic, but it’s likely to have a negative impact. For example, it may exacerbate an already cooling CMBS market, especially as the travel and retail segments struggle; it may halt lending altogether across all asset classes, or it may have a milder impact than predicted. While we just don’t know what lies ahead, one thing is for certain—when it comes to providing professional, independent director services to our clients, we’ve never been more ready to help.
CSC’s Independent Director services
CSC is recognized by rating agencies and lenders as one of the only approved providers of professional ID services in the U.S. We’ve been providing ID services for over 25 years, with 15,000 + active independent director appointments. Our highly qualified team includes attorneys and paralegals. We take the time to review documents at the outset of an appointment, ensuring the role of the ID is clear and expectations are established up front. This attention to detail sets us apart. Should the BRE ever contemplate a bankruptcy filing, the IDs provided by CSC are ready and willing to act.