Appointment, replacement and retirement of Trustee
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The Law and Lore of Repackaging
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crucible of the agency problem. It seems an uncommon condition amongst modern agents that they are unable to sensibly estimate the amount of effort they will be required to put in to a commitment, and therefore unable to make that commitment without some kind of free walk away. We derivatives lawyers know that a contract broken has a negative or positive value full stop this knowledge appears not to have filtered through to the agency community.
=Trustee and agent
It is an age-old dilemma: you have structured an asset backed securitization that is scheduled to last 10 years, and to help the vehicle perform its obligations, engaged at considerable, cost (though that is not how they will see it), the regular suite of corporate agency providers, such as trustee, paying agent, registrar, custodian, and account bank.
Even though each is in the business of providing the services they are engaged for, and as far as we know has little intention of exiting that business for the life of the transaction of combo each will insist on a retirement clause with an unnervingly short notice period — something like three months. This they will airily explain is required by policy, or capital regulation, and in any case is quite immovable as a commercial term of their engagement.
Upon such a departure, the structure is left with the unenviable and possibly impossible task of engaging a replacement agent to continue the transaction without having any resources to pay that replacement. the retiring agent feels no compunction and does not regard this as its own problem. Generally, abs vehicles are backed by broker dealers who will comma if it comes to it, absorb the necessary cost. and, in fairness, it is an unlikely event indeed.
While the broker dealer may have the deep pockets to manage that expense, the equity of the situation suggests this should in fact rest with the retiring agent. You committed yourself, engaged for a fixed term, and now proposed to walk away. Why should you not pay the Mark to market value of your transaction to the incoming replacement as a condition for being allowed to go out?
Law firm fixed quotes
Another great example is the endemic inability of experienced capital markets law firms to have any sense for how much cost they will incur in documenting a standing repeats transaction. This is a mystery in itself colon have these men and women not been in business for decades doing just this thought of activity, apparently 2,300 hours per year? Why are they so poor at estimating their own time expenditure?
They may throw up their hands and blame their captious clients. “how am I meant to control the degree of pettifoggery and anal retentivity that will inevitably be brought to the negotiation by my own client, let alone everyone else's?”
This would be a fair objection if you had never documented a transaction before. But this is the operating environment for every capital markets transaction, so a little more wisdom and common sense is required. You are not required to control it; only anticipate it.
Law firms, of course, hold their financial services clients captive and would never suffer such a restriction on their operating conditions.