Global law firm Reed Smith has advised Wilmington Trust and Mortgage Funding 2008-1 plc (MF) in the extensive restructuring of its £1.1 billion residential mortgaged-backed securitization originally arranged by Lehman Brothers.
This transaction, which is one of the “Eurosail” series, is the first ever UK Lehman RMBS deal to be effectively restructured to resolve the “broken swap” issues since Lehman Brothers’ bankruptcy in 2008. A US$205 million claim against Lehman Brothers in relation to the currency swap in the transaction was sold to provide the funds to implement the restructuring.
In addition to the sale of claim, the first phase of the restructuring (completed in August 2013) involved a number of innovative features including changing the currency of €647.3 of MF’s existing bonds from Euro to Sterling to eliminate exposure to currency fluctuations and avoid paying a large premium to buy replacement protection against such exposure, and a £46 million write-down of MF’s other debt securities to match its assets.
The second and final phase of the restructuring was completed on 21 November 2013 which involved restructuring the existing notes and implementing certain credit enhancement and liquidity reserves, but more significantly, the new issue by MF of £178 million of additional bonds, which were listed on the Irish Stock Exchange and rated by Standard & Poor’s and Fitch. As a result of the restructuring the credit ratings of the senior bonds soared 13 notches.
This transaction is precedent-setting for a number of other restructurings on which Reed Smith’s structured finance team has been mandated.
Tamara Box, partner and head of structured finance at Reed Smith, commented:
“This transaction has provided an effective road-map for a number of others in the “Eurosail” series with similar issues (including the recent Eurosail 2007-5NP restructuring) and is proof that these issues can be resolved with sufficient investor participation and proactivity. We expect to see further similar restructurings, so watch this space!”
The Reed Smith team was led by partner and head of the firm’s structured finance practice Tamara Box and included associates Simon Hugo, James Fisher, Sarah Caldwell, Bronwen Whitehead, Sabah Rahman and trainees Katie Grace and Imogen Holmgren (from the London structured finance team), and Andrea Pincus (New York). Lal Mack (New York) and Jacqui Hatfield (London) provided regulatory advice, and Caspar Fox (London) and Angelo Ciavarella (New York) provided tax advice.
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About other advisors on the matter
Wilmington Trust and Mortgage Funding 2008-1 plc were also advised by Tods Murray on Scots law, McCann FitzGerald on Irish law, and Tughans on Northern Irish law matters. The noteholders were advised by Schulte Roth & Zabel and Clifford Chance on English and New York law, and Maples and Calder on Irish law. Allen & Overy advised the note trustee, Clifford Chance advised the cash/bond administrator, Linklaters advised the mortgage sellers and Pinsent Masons advised Barclays Bank in its capacity as account bank.
About Reed Smith
Reed Smith is a global relationship law firm, with more than 1,800 lawyers in 25 offices throughout Europe, the Middle East, Asia and the United States.
For further information, please visit www.reedsmith.com or contact Annabelle Price (Branding & Communications Executive EME) on +44 (0)20 3116 3787.