This article provides an overview of the experience of trustees in the structured finance market during the market crisis of the past few years, by describing the major events that marked the evolution of the collapse and explaining how each of those developments affected or created challenges for trustees. The article discusses challenges resulting from the financial collapse of the mortgage originator and servicer industry, and concerning the enforcement of mortgage loan repurchase obligations and loan modifications. It explains how trustees found themselves involved in a variety of litigation, some of an unexpected nature, and more unexpectedly found themselves center-stage in a variety of political pressures and developments. It also describes how they are now keenly interested in the legislative and regulatory initiatives that remain to be completed. The article discusses the unique combination of factors that led to the collapse of the CDO market, some of the issues faced as CDOs went into default and liquidation, and how multiple tranche "warfare" created a variety of difficulties for trustees. It also discusses how the quality and clarity of many transaction documents proved to be disappointing or lacking, opening the door to bitter disputes over interpretation in some cases and in others causing trustees to bring matters into court to obtain guidance and protection. Lastly, it discusses briefly some of the issues faced by trustees in connection with the Lehman bankruptcy.
THE LEHMAN BANKRUPTCY: COULD IT GET ANY MORE COMPLICATED?