Clifford Chance’s stated objective is to be the leading law firm in the CRT market, advising on nearly every transaction and leading the sector’s evolution. In recognition of its success, the firm is SCI’s CRT Law Firm of the Year
Given how both the firm’s practice and the market have grown over the last 20 years, Clifford Chance views its CRT activity as a partnership with the industry. “There are the originators, the investors and the regulators, and we see ourselves as the next pillar in delivering both economically and from a regulatory perspective in terms of what each party is trying to achieve. This model that we've been pursuing from the get-go has meant that we're with all of those participants through both the good times and the dark days,” says Jessica Littlewood, a partner in the London office.
Tim Cleary, a partner at the firm, adds: “Our goal has always been to have the biggest team with the most expertise; to be in a position to advise market participants, regardless of their strategy, what type of transaction they're looking to execute and which jurisdiction they're in. We are the only firm that offers this full-service approach.
Cleary explains that the firm seeks to be at the forefront of market evolution. “A key development this year has been the expansion of the Canadian CRT market, which went from one originator to a position where now all five of the large Canadian banks are active. Another growing market has been Poland, where there had been a very small amount of activity with the EIF in the past, but last year saw a number of private sector transactions come to market. We advised on all of those and are involved with a number of further transactions in the Polish market,” he adds.
Gareth Old, partner at Clifford Chance in New York, expects the US to be the next big CRT market to open up. He says there are three strands to this development.
First is the regulatory side, with the introduction of the new Basel 3 Endgame. We are working through this lengthy document and we're acting for the trade groups in terms of the responses to that and making sure that it works and aligns with practical and executable transactions that are consistent with the way the market needs to develop,” he explains.
Then there is the wider regulatory framework, he points out. “There's one thing for the bank to say it couldn't get the capital relief that it’s looking for. But there are other aspects, like how does this work with insurance rules and commodity pool regulation. There are a lot of non capital-based regulatory, safety and soundness issues, which banks really need to work through with experts. So that's what we are doing, where we sit alongside the banks and their regulatory accountants, as they're developing their expertise.
The third aspect is that the US market appears to be developing in two parts. “There are the specialist investors who are the CRT experts and they are particularly active in areas such as corporate credit and subscription loan transactions. They're looking at this as being a specialised market, but the real differentiator for the US is actually in terms of the consumer assets and residential mortgages, where a lot of the growth will come from traditional investors in the cash securitisation market getting comfortable with the synthetic model. This is where an awful lot of the scale is going to come in the US market,” Old observes.
Investors are also interested in being able to use CRT investments in the same way as they can in the cash securitisation market. “For example, repo and loan-on-loan type financing and leverage based on those exposures. So, we're also working with investors to build that up. One of the things that's interesting is that in many transactions, we act for the issuer in terms of issuing the securities, as well as acting for the investors setting up entities to hold their investments,” Old says.
He continues: “It’s clear that capital requirements are increasing for banks, and that includes small, medium and large banks. It's also clear that capital is very expensive for them and that the regulatory requirements for enhanced capital is not going to let up, so what I think we are experiencing already is bank treasurers and bank risk managers recognising that is the current state of play. And they're moving towards issuance of credit risk transfer transactions, which are the alternative capital management tool to raising more capital.
Looking ahead, Littlewood does not expect revolution in the market this year, but instead a continued expansion. “There are some jurisdictions where it would be nice to see the regulator open the doors. Australia is still one where it doesn't look like the regulator is budging, but we live in hope. I think we'll see a steady evolution of the market – deepening and broadening – as it grows in a healthy way.
Indeed, largely driven by the STS framework, standardised banks are becoming a larger constituent of the market. “Standardised bank issuance volume is never going to come close to that of the larger banks. But the CRT product bedding down throughout the industry has been a really interesting development and one that I think is going to continue, notwithstanding some of the headwinds that come up,” Cleary concludes
Honourable mention: Cadwalader, Wickersham & Taft
Cadwalader has seen a meteoric rise within North American CRT endeavors throughout the award's timeline, serving as legal counsel for issuers and investors in the majority of transactions that came to the market. The firm showcases proficiency in both legal and structural aspects, including on-market commercial terms, and a deep bench of first-in-class representation. Its leading CRT services are complemented by top-tier practices in relevant asset classes, pivotal to effective risk transfer.
For the full list of winners and honourable mentions in this year’s SCI Capital Relief Trades Awards, click. here