15 November 2006 – LAWFUEL – Europe Law & Business News – International law firm Mayer, Brown, Rowe & Maw LLP’s finance practice has advised Landesbank Berlin AG in the restructuring of its securities arbitrage conduit, Check Point Charlie. The deal closed on 10 November 2006.
Highlighted recently by Moody’s as “one of the most innovative conduit structures in the market”, the new and improved Check Point Charlie combines asset backed commercial paper (ABCP) and collateralised debt obligation (CDO) technology to regulate the amount of liquidity support and credit enhancement required to support its securities.
In addition to traditional ABCP it will issue floating-rate ABCP, extendable ABCP notes and new X-Notes (floating rate notes with an initial maturity of up to one year, extendable monthly at the investor’s option, up to a latest maturity date in the medium term) in the US and European markets. Liquidity support for the notes is provided by a combination of committed liquidity loan agreements, asset sales and repurchase agreements.
This new structure allows Landesbank Berlin to minimise the required level of committed bank liquidity facilities provided to the conduit while satisfying the “Internal Assessment Approach” rules for IRB banks under Basel II (allowing a bank to use internal ratings to calculate capital requirements for liquidity support and credit enhancement provided to a commercial paper conduit), so that Check Point Charlie can continue to provide its sponsor with funding and regulatory capital benefits under the new capital regime that comes into force for all European banks on 1 January 2007.
Mayer, Brown, Rowe & Maw finance partner Kevin Hawken commented “We are delighted to have assisted Landesbank Berlin on the creation of this improved and highly advanced investment vehicle. Recent and ongoing changes in regulatory capital and accounting rules are leading financial institutions and other conduit sponsors to develop new structures to increase the flexibility and efficiency of ABCP conduits. Our firm has a great deal of experience and specialised knowledge in the ABCP market and related regulatory issues, and we look forward to participating in further new developments in this market.”
The Mayer, Brown, Rowe & Maw LLP team advising Landesbank Berlin AG was led by partner Kevin Hawken, assisted by senior associate, Kingsley Ong.