Orrick PowerPoint Template

January 17, 2001Name of PresenterKellogg School of Management

Securitization 2003 Spring Colloquium

Cam CowanMay 12, 2003

Legal Issues in Securitization: What You Don’t Know

Could Hurt You

Agenda

• Hypothetical Transaction

• Structuring the Transaction

• Selling the Transaction

-

•Mortgages

•Credit Card Receivables

•Auto Loan Receivables

•Student Loans

•Corporate Loans

•Tobacco Settlement Payments

•Record Sales

•And maybe . . .

Source of Payment

Cubs Ticket Sales

Ticket Sale Securitization

There must be a reasonable predictability of a consistent payment stream

• Nature of Obligors• Nature of Originator• Nature of Receivables

Confirming predictability of cash flow

• Attendance statistics, season ticket holders, ticket prices, continuity

Do the Chicago Cubs ticket sales meet the requirements?

• Average annual tickets sold (past 20 years): 2.5 million

• Current average ticket price: $30

• Current average annual ticket revenues: $75 million

• Last time won World Series: 1908

Ticket Sale Securitization

• Bankruptcy Law

• Commercial Law

• Tax Law

• Securities Law

• [Bank Regulatory]

Chicago Cubs Ticket SalesStructuring the Transaction

Chicago National League Ball Club, Inc.“Owner and Servicer”

Chicago Cubs LLC“Transferor”

Chicago Cubs Master Ticket Trust

Investors

Structure Summary

Receivables $

Receivables

$Class A, Class B and Class C Notes

$

Chicago Cubs Ticket SalesStructuring the Transaction

The Parties:

• “Obligors” – The fans• Originator/Obligor – The Chicago Cubs• Servicer – The Chicago Cubs• Trustee – A financial institution• Credit Enhancer – Subordinated class of securities• Rating Agencies – S&P, Moody’s, Fitch• Underwriter – Investment bank• Investors – Pension fund, insurance company, financial institution• Counsel – Mayer Brown Rowe & Maw

Bankruptcy Law -- Make the SPV “Bankruptcy-Remote”

• Protecting the SPV from voluntary and involuntary bankruptcy

• Protecting the SPV from substantive consolidation

• Creating a “true sale” of receivables

Chicago Cubs Ticket SalesStructuring the Transaction

Commercial Law – Perfect the Transfer

• Creating the security interest

• Perfecting the security interest

• Giving the security interest priority

Chicago Cubs Ticket SalesStructuring the Transaction

Tax Law –- Avoid Additional Taxation

• Taxation of the Originator

• Taxation of the SPV

• Taxation of the Investors

Chicago Cubs Ticket SalesStructuring the Transaction

• Applies to Investment Companies – entities that are principally engaged in owning or holding “securities”

• “Security” is broadly defined

• Compliance is costly and burdensome

• Find an exemption: Sections 3(c)(1), 3(c)(5), 3(c)(7); Rule 3a-7

Investment Company Act of 1940 -– Avoid It

Chicago Cubs Ticket SalesStructuring the Transaction

• Securities Act of 1933

• Securities Exchange Act of 1934

• ERISA

• Offering the Securities

• The Closing

Chicago Cubs Ticket SalesSelling the Transaction

The Securities Act of 1933 –- Comply with It

• Requires offers and sales of securities to be registered, unless exemption available

• Restricts offering communications

-- Pre-filing period-- Waiting period-- Post-effective period

• Exemptions from Registration -- Regulation D, Rule 144A, Regulation S

Chicago Cubs Ticket SalesSelling the Transaction

The Securities Act of 1933 –- Comply with It

• “Prospectus” disclosure requirements

• Liability for false registration statement

-- Section 11 liability-- Due diligence defense

[And “Blue Sky” Laws]

Chicago Cubs Ticket SalesSelling the Transaction

The Securities Exchange Act of 1934 -- Don’t Forget It

• Anti-fraud provisions – Rule 10(b)(5)

• Periodic reporting requirements

• Sarbanes-Oxley requirements

Chicago Cubs Ticket SalesSelling the Transaction

ERISA -- Get Help

• Pension Plan investors

• Prohibited Transactions

-- Between Plan and party in interest-- Between Issuer and party in interest

• Exemptions

• Debt securities

Chicago Cubs Ticket SalesSelling the Transaction

Communications –- Be Careful

• Prospectus defined in Section 2(a)(10) of the ‘33 Act:

• Provides investors with material information:-- Description of the notes

-- How, when, and how much principal and interest will be paid -- Information about the Chicago Cubs

-- Risk factors:•Baseball strike•Loss of Sammy Sosa•Poor team performance•Prolonged bad weather•Beer prohibition•Damage to Wrigley Field

Chicago Cubs Ticket SalesSelling the Securities

Communications –- Be Careful

• Regulation FD (Fair Disclosure)

• Addresses selective disclosure of material, non- public information by issuers

• Requires issuer to make concurrent, public disclosure of material, non-public

information

Chicago Cubs Ticket SalesSelling the Securities

Communications –- Be Careful

• Electronic Roadshows

-- Roadshows are allowed to be performed over the Internet

-- Transmission cannot be a “prospectus” -- Registered offerings -- Rule 144A offerings -- Regulation S offerings

Chicago Cubs Ticket SalesSelling the Securities

The Closing -- Bring the Champagne

• Documents Reviewed and Executed

• Opinions Delivered-- authority, enforceability, no conflicts, etc.-- commercial law opinions-- true sale/non-consolidation opinions-- tax opinions-- securities law opinions-- 10(b)(5) opinion

• Money Wired and Bonds Released-- The Chicago Cubs receive the proceeds of the sale and the

investors receive their securities

Chicago Cubs Ticket SalesSelling the Securities

The Chicago Cubs will now have money to pay its players, causing them to express their gratitude . . . .

Chicago Cubs Ticket SalesEverybody is Happy

Chicago Cubs Ticket SalesEverybody is Happy

Orrick PowerPoint Template

January 17, 2001Name of PresenterKellogg School of Management

Securitization 2003 Spring Colloquium

Cam CowanMay 12, 2003

Legal Issues in Securitization: What You Don’t Know

Could Hurt You