Articles

The Conundrum of Covered Bonds

66(3): 561 - 586 (May 2011)Covered bonds, which have been part of European finance since the time of Frederick the Great, are now being widely touted as the answer to securitization's imperfections. There is great confusion, though, about the nature of covered bonds and their relationship to secured bond financing and securitization. This article attempts to demystify covered bonds, examining how they fit within a larger financing framework, analyzing their legal rights and obligations, and comparing their costs and benefits. The benefits of covered bonds are similar to those of securitization; both can access low-cost capital market funding with low risk to their investors, and both can be used to regenerate lending markets. The costs of covered bonds may be higher, though, because the "dynamic" collateral pools and "dual" recourse to the issuer that protect covered bonds shift virtually all risk to unsecured creditors. Whether that risk should be allowed to be shifted so asymmetrically is a policy question for any nascent covered bond regime.

Claims Against Lawyers by Bankruptcy Trustees--A First Course on the "In Pari Delicto" Defense

66(3): 587 - 624 (May 2011)One of the most persistent and troublesome sources of claims against lawyers and law firms arise in the context of the client or former client that files a petition in bankruptcy. Claims by bankruptcy trustees and others having standing to pursue the debtor's pre-petition professional advisors can be expensive and challenging to defend. The "in pari delicto" doctrine--under which courts generally refuse to adjudicate claims between wrongdoers--has produced a number of successful defenses to claims against the debtor's pre-petition professionals. This article outlines some relatively common scenarios in which trustees bring claims against parties providing professional services to a debtor prior to bankruptcy and the most common types of claims asserted. It then examines the source of a bankruptcy trustee's right to pursue these claims as well as the "in pari delicto" defense, including three relatively recent decisions that have produced sharp differences in the defense's application. The article ends with some common sense risk management steps that law firms might take to mitigate their exposure to these types of claims.