On May 25, 2016, DBRS published an updated report on rating Public Pension Funds & Related Exclusive Asset Managers. Report.

On May 25, 2016, DBRS published an updated report on rating Canadian Municipal Governments. Report.

On May 25, 2016, DBRS published an updated report on rating Canadian Public Hospitals. Report.

On May 25, 2016, DBRS published an updated report on rating Canadian Provincial Agents of the Crown. Report.

On May 25, 2016, DBRS published an updated report on rating Canadian Provincial Governments. Report.

Not So Fast – Supreme Court Holds Prepetition Fraudulent Transfer Precludes Post-Petition Discharge in Husky International

One of the goals of the Bankruptcy Code is to provide a debtor with a fresh start. The discharge of prepetition debts at the conclusion of a bankruptcy case is one of the most important ways to attain this fresh start.  On May 16, 2016, the Supreme Court made it harder for debtors to obtain a fresh start by broadening an exception to discharge.

Section 523(a)(2)(A) of the Bankruptcy Code provides that an individual debtor is not discharged from any debt "for money, property [or] services … to the extent obtained by false pretenses, a false representation, or actual fraud[.]" Circuits split as to whether actual fraud under Section 523(a)(2)(A) requires an affirmative misrepresentation; the Fifth Circuit had held that this was a necessary element to prevent discharge, but the Seventh Circuit had held that "actual fraud" encompassed a broader range of behaviors.

The Supreme Court resolved this split, rejecting the Fifth Circuit's narrow interpretation and finding that the term "actual fraud" does not need to include an affirmative misrepresentation by the debtor. With this broader reading, debtors will be unable to discharge prepetition debts where there is evidence that they inappropriately siphoned of their assets prior to filing for bankruptcy. Husky Int'l Elecs., Inc. v. Ritz, No. 15-145, 2016 WL 2842452 (U.S. May 16, 2016).

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Tennessee Chancery Court Denies Motion to Dismiss $164 Million RMBS Suit Brought by Tennessee Pension Fund

On May 24, 2016, Chancellor Carol L. McCoy of the Chancery Court for Davidson County, Tennessee, declined to dismiss claims brought by the Tennessee Consolidated Retirement System ("TCRS") against several large financial institutions related to $164 million in alleged losses on mortgage-backed securities.  The banks argued that the case was barred by the three-year statute of limitation for common law fraud claims in Tennessee and the two-year limit for claims under the Tennessee Securities Act.  Invoking the doctrine of nullum tempus occurit regni ("no time runs against the king"), however, the court held that limitations periods do not apply to the state or its political arms, such as TCRS.  The court also held that TCRS adequately alleged the elements of its fraud, constructive fraud, negligent misrepresentation, and Tennessee Securities Act claims. Order.

HSBC Sues Merrill Lynch and Bank of America for $420 Million Relating to RMBS Deal

On May 24, 2016, HSBC Bank USA, N.A., in its capacity as Trustee of Merrill Lynch Alternative Note Asset Trust, Series 2007-0AR5 ("the Trust"), served a summons with notice on Merrill Lynch Mortgage Lending, Inc. ("Merrill"), Countrywide Home Loans, Inc. ("Countrywide"), and Bank of America, N.A. ("BofA"), in their respective capacities as sponsor, originator, and servicer of the Trust, alleging that the three Defendants discovered that mortgage loans securitized in the Trust breached certain representations and warranties and failed to notify the Trustee in accord with their contractual obligations.  Specifically, HSBC alleges that Merrill, Countrywide, and BofA discovered the breaches through (i) the performance of their respective roles as issuer, originator, and servicer; and (ii) through their participation in multiple government investigations related to the origination, securitization, and servicing or mortgage loans.  The summons with notice seeks $420 million in damages. Summons with Notice.

Second Circuit Overturns Fraud Judgment against Bank of America and Former Countrywide Executive

On May 23, 2016, a three-judge panel of the Second Circuit Court of Appeals overturned a judgment of fraud against Bank of America, Countrywide, and former Countrywide executive Rebecca Mairone in U.S. v Countrywide Home Loans, Inc.  In reversing the District Court and ruling for the Defendants, the Second Circuit vacated a $1.27 billion judgment against Bank of America and a $1 million judgment against Ms. Mairone.  The Second Circuit panel held that the evidence at trial showed at most an intentional breach of contract, which is insufficient as a matter of law to constitute fraud under the federal mail and wire fraud statutes.  Instead, to support a claim, the government was required, but failed, to prove that defendants' intent at the time of contracting was not to comply with their contractual obligations.  Orrick represented Ms. Mairone in connection with the appeal. Opinion.

ESMA Consults on Draft Implementing Measures under the Benchmark Regulation

ESMA published a consultation paper (ESMA/2016/723) on the technical implementation of the proposed Regulation on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds and amending Directives 2008/48/EC and 2014/17/EU and Regulation (EU) No 596/2014 ("Benchmark Regulation").

The proposals in the paper are based on the provisional text of the Benchmark Regulation published by the European Parliament in April 2016. The paper covers the five areas on which the Commission has requested advice, setting out the relevant provisions and their objectives, an explanation of the related policy issues and references to the relevant responses received to the discussion paper: some elements of the definitions, measurement of the use of critical and significant benchmarks, criteria for the identification of critical benchmarks, endorsement of a benchmark or family of benchmarks provided in a third country and transitional provisions. Consultation paper.

European Commission Adopts Implementing Regulation on Risk-Free Rate under Solvency II

The European Commission has adopted an Implementing Regulation on the risk-free rate under the Solvency II Directive (2009/138/EC). The Implementing Regulation sets out technical information to be used by insurers when calculating technical provisions and basic own funds for reporting with reference dates from March 31 until June 29, 2016. Insurers should use the technical information, which is based on market data related to the end of the last month preceding the first reporting reference date to which the Implementing Regulation applies. EIOPA provided the Commission with the technical information relating to end March 2016 market data in April 2016. That information was published on April 7, 2016 in accordance with Article 77e(1) of Solvency II.

The Implementing Regulation will enter into force on the day after it is published in the Official Journal of the EU (OJ) and shall apply from March 31, 2016.

ESMA Publishes Opinion on MiFIR II RTS on Ancillary Activities

ESMA has published an opinion proposing amendments to its draft technical standards ("RTS") under the MiFID II Directive (2014/65/EU) and the Markets in Financial Instruments Regulation (Regulation 600/2014) (MiFIR) relating to criteria to establish when a non-financial firm's commodity derivatives trading activity is considered to be ancillary to its main business. The revised draft RTS are set out in an annex to the opinion.

In response to the draft text submitted by ESMA to the European Commission in September 2015, the Commission requested that ESMA include in its RTS a capital-based test for groups that have undertaken significant capital investments in creating infrastructure, transportation or production facilities or groups that undertake activities or investments that cannot be hedged in financial markets.

ESMA maintains that its business activity test was in line with the objectives set out in MiFID II, and a capital based test has significant drawbacks. However, it has identified some metrics for a numerator and denominator that the Commission could use to construct a capital test as an alternative to ESMA's main business test. In cases where a capital test is introduced, ESMA proposes to allow entities choose between performing the original main business test based on trading activity or a capital test to avoid putting small and medium-sized entities at a disadvantage. Opinion.

FinTech Series: Marketplace Lending

The FTC will host its first FinTech Forum examining marketplace lending and its impact on consumers on June 9, 2016 in Washington DC. To view additional details, please click here.

Orrick Webinar: Negotiating Financing Agreement Provisions to Manage Risk Under Anticorruption, Anti-Money Laundering and Economic Sanctions Laws

Orrick will host a webinar entitled, "Negotiating Financing Agreement Provisions to Manage Risk Under Anticorruption, Anti-Money Laundering and Economic Sanctions Laws" on June 15, 2016. To view additional details or to register, please click here.