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spring 2011 archive

This is the page for Caroline Bradley’s International Finance Class at the University of Miami. This Spring we will be meeting in Room F 302 on Mondays and Wednesdays from 2-3.20 pm. Materials for the class are available initially from this page and from the Spring 2011 Materials tab at the right of this page.

This class is a bit different from other law school classes as it does not begin with a doctrinal category (such as tort, contract or securities regulation) set out in common law or a statute. Rather the starting point is economic activity which crosses territorial borders: we will explore some of the legal and policy issues which arise as a result of this economic activity.

WEEK 14: Apr. 18-22 For this week please read Materials Chapter 7: Legal Risk and Insolvency (and here is a diagram of the Lehman case) and the ISDA Amicus Brief in the US litigation.

Here is the Dodd-Frank Symposium Program for Saturday 9 April.

WEEK 13: April 11-15 We will finish Materials Chapter 6: Banking and Securities Regulation and then discuss Andrew G Haldane, Capital Discipline (Jan. 9, 2011).

Apr. 7: For Wednesday please also read Chapter 2 of the IMF’s Global Financial Stability Report (April 2011) on Basel III and liquidity.

WEEK 12: Apr. 4-8: On Monday we will finish discussing Materials Chapter 5: Syndicated Loans 3 and then we will move on to Materials Chapter 6: Banking and Securities Regulation. Please read to page 24 for Monday and the rest of the Chapter for Wednesday. After you have read this material I would like you to read Andrew G Haldane, Capital Discipline (Jan. 9, 2011), but we won’t likely get to this next week.

WEEK 11: Mar. 28-Apr. 1: On Monday we will finish with Materials Chapter 4: Syndicated Loans 2.

For Wednesday, please read Materials Chapter 5: Syndicated Loans 3.

Mar 22: Recent Asset Freeze Actions: Egypt (EU Regulation (Mar. 21, 2011); EU Council Decision (Mar. 21, 2011) UK regs (Mar. 22, 2011)); Libya (OFAC Licence Authorizing Provision of Certain Legal Services (Mar. 9, 2011).

Mar 16: The WSJ reports (subscription required) on investigations of banks’ behavior with respect to the identification of Libor during the financial crisis.

WEEK 10: Mar. 21-25 Please read Materials Chapter 4: Syndicated Loans 2 (I plan to cover the material in pages 1-31 on Monday and the rest of the material on Wednesday).

WEEK 9: Mar 14-18 Spring Break. Have a good break.

Mar. 9: We have noted that lenders may have access to inside information with respect to the borrower. For an illustration of the risks that such access may have, consider the enforcement proceedings the SEC brought against Barclay Bank which were settled in 2007:

According to the complaint, Barclays and Landzberg illegally traded millions of dollars of bond securities over eighteen months, while aware of material nonpublic information received through six creditors committees. Landzberg simultaneously served as Barclays’ representative on the creditors committees and as its proprietary trader. Landzberg signed confidentiality agreements and committee bylaws on Barclays’ behalf, and received material nonpublic information concerning the financial condition and prospects of the issuers, their most recent business plans, detailed management projections, contemplated financing alternatives, proprietary advisor analyses, and the timing and terms of proposed plans of reorganization. Between March 2002 and September 2003, the repeated illegal insider trading by Barclays and Landzberg breached fiduciary and other duties of trust or confidence.
The complaint alleges that Barclays and Landzberg misappropriated material nonpublic information by failing to disclose any of their trades to the creditors committees, issuers, or other sources of such information. In a few instances, Landzberg used purported “big boy letters” to advise his bond trading counterparties that Barclays may have possessed material nonpublic information. However, in no instance did Barclays or Landzberg disclose the material nonpublic information received from creditors committees to their bond trading counterparties. Three of the six committees were official unsecured creditors committees appointed by the Office of the United States Trustee under the auspices of the federal bankruptcy courts. Barclays served as “Chair” of two of these bankruptcy committees at the time of its illegal insider trading.

Mar 7: Here is a link to a useful blog post on asset freezes. And here is a link to a timeline showing US relations with Libya.

Here is a link to a diagram of the CHIPS system.

WEEK 8: Mar. 7-11 For next week please read Article 10 of Syndicated Loan Agreement between International Assets Holding Corporation and Bank of America and other Lenders (October 1, 2010) and the rest of Materials Chapter 3: Syndicated Loans 1.

Mar. 2: Here are links to: the US Libyan Asset Freeze (Feb. 25, 2011) and UN Security Council Resolution 1970 (2011) (Feb. 26, 2011).

Feb 27: News stories suggest that now that the Irish election trounced Fianna Fail Ireland will be asking its bondholders to accept reductions in payments. This idea was rejected when the eurozone countries and the IMF agreed to bail out Ireland, but the new government may reopen the issue.

WEEK 7: Feb 28- Mar 4 On Monday we will finish considering points 1-6 below with respect to the Syndicated Loan Agreement between International Assets Holding Corporation and Bank of America and other Lenders (October 1, 2010).

1. The structure of the transaction (consider what different parties are involved, and what are their roles, what different borrowing options are available, and what the agreement provides with respect to interest rates and other charges)
2. The provisions of the agreement which are designed to protect the interests of the lenders (conditions precedent, representations and warranties, covenants (affirmative and negative), events of default and remedies).
3. Are there provisions designed to protect the interests of the borrower?
4. What is the governing law? What courts or tribunals have jurisdiction over disputes under this agreement?
5. Note the provisions for assignment of interests in the loan (section 11.06).
6. We discussed sharing clauses when we considered the pari passu clause: can you find such a provision in this agreement?
7. Note section 3.04 of the agreement.
8. In what ways is this an international financial transaction?

Here are some useful background materials on syndicated loans you could look at for Monday:
Loan Market Association, Guide to Syndicated Loans
Loan Market Association, Guide to Syndicated Leveraged Finance
Standard & Poor’s, A Guide to the Loan Market (Sep. 2010)

Then we will move on to look at some cases relating to issues addressed by provisions in agreements like this one. Here is Materials Chapter 3: Syndicated Loans 1. Please read pages 1-19 for Monday, and pages 19-60 for Wednesday.

Feb. 21: For background on the IMF and gold, see here. This is in response to today’s question – you are not required to read this material for the class.

Also, here is today’s CACs Handout

Feb. 23: There is an article on syndicated loans and the financial crisis you may find interesting in the September 2010 BIS Quarterly Bulletin here. The article states:

the supply of syndicated loans tends to be more sensitive to bank balance sheet constraints than long-standing lending relationships. Syndicated loan markets are highly competitive and characterised by arm’s length relationships. One, or a few, arranging banks typically negotiate the loan contract and a larger number of participating banks join the syndicate as providers of funding. While the lead banks (or arrangers) in a syndicate may seek fee income and to maintain the relationship with the borrower, the motivation for participating banks is primarily to generate interest income..

WEEK 6: Feb 21-25 For Monday please read the two sets of collective action clauses. We will focus on the mechanisms the clauses establish to prevent the holdout creditor problem, and also focus on other aspects of the drafting of the clauses. For example, the EMCA clauses include examples of a negative pledge clause, cross acceleration (sometimes called cross default) clause, and material adverse change clause. The two sets of clauses differ in that the G10 clauses assume there will be a trustee and the EMCA clauses provide for a fiscal agent. What differences do you see in the roles of the trustee and fiscal agent? After we have finished reviewing these clauses we will discuss the UK’s Debt Relief (Developing Countries) Act 2010 . Please read the Explanatory notes to the Bill and the IMF Fact Sheet on Debt Relief Under the Heavily Indebted Poor Countries (HIPC) Initiative as background. The statute is complex, but limited in scope of application (just HIPC countries), and in time – it will expire this summer unless extended (see section 9), and it does not apply to some foreign judgments (such as judgments from another EU Member State, see section 7). The Jubilee Debt Campaign criticizes the HIPC initiative as follows:

* HIPC takes too long: more than 10 years for 32 countries so far. * HIPC offers far too little – total cancellation of all unpayable and unjust debt is needed. * HIPC is too limited – many more countries need and deserve debt cancellation. * HIPC comes with damaging and unfair strings attached. * HIPC does not include all debts: debts are only partially cancelled, and some countries, banks and companies refuse or fail to take part in the HIPC process at all. * HIPC is entirely controlled by creditors: they do not accept responsibility for their part in creating and maintaining the debt crisis, or allow poor countries to have a say.

On Wednesday we will start looking at this Syndicated Loan Agreement between International Assets Holding Corporation and Bank of America and other Lenders (October 1, 2010). The Borrower’s investor relations web page is here.

As you read the agreement, please consider the following features and questions:
1. The structure of the transaction (consider what different parties are involved, and what are their roles, what different borrowing options are available, and what the agreement provides with respect to interest rates and other charges)
2. The provisions of the agreement which are designed to protect the interests of the lenders (conditions precedent, representations and warranties, covenants (affirmative and negative), events of default and remedies).
3. Are there provisions designed to protect the interests of the borrower?
4. What is the governing law? What courts or tribunals have jurisdiction over disputes under this agreement?
5. Note the provisions for assignment of interests in the loan (section 11.06).
6. We discussed sharing clauses when we considered the pari passu clause: can you find such a provision in this agreement?
7. Note section 3.04 of the agreement.
8. In what ways is this an international financial transaction?

WEEK 5: Feb 14-18 Please read the rest of the Sovereigns material for next week, and the UK’s Debt Relief (Developing Countries) Act 2010.

WEEK 4: Feb 7-11 On Monday we will finish discussing the introductory materials.

Here is the next set of materials: Materials Chapter 2: Sovereigns. Please read to page 20 of this Chapter for Monday and to page 52 for Wednesday. Please also read Paul Krugman, Can Europe Be Saved? if you have not done so already.

Feb. 7: As background on the foreign exchange market you may find it useful to read the National Futures Association’s booklet on Trading Forex: What Investors Need to Know.

Here is this week’s video (it is relevant to the sovereign debt materials):

After we finish this Chapter we will be looking at the implications of the UK’s Debt Relief (Developing Countries) Act 2010 (known as the Vulture Funds Act) which limits recovery with respect to debt of HIPC countries.

Feb. 9: The IMF’s Independent Evaluation Office has published a report which is critical of the IMF:

The IMF’s ability to detect important vulnerabilities and risks and alert the membership was undermined by a complex interaction of factors, many of which had been flagged before but had not been fully addressed. The IMF’s ability to correctly identify the mounting risks was hindered by a high degree of groupthink, intellectual capture, a general mindset that a major financial crisis in large advanced economies was unlikely, and inadequate analytical approaches. Weak internal governance, lack of incentives to work across units and raise contrarian views, and a review process that did not “connect the dots” or ensure follow-up also played an important role, while political constraints may have also had some impact.

WEEK 3: Jan 31- Feb 4 We will start on Monday at page 12 of Materials Chapter 1: Introduction. Please read the rest of this packet for next week, focusing on the questions, as we will use these as the starting point for discussion.

Meanwhile, the FCIC report is available here. On the issue of competition between financial centers, here is a video produced by TheCityUK to promote financial services in the UK:

And here is a link to an announcement from the British Bankers’ Association for a workshop with the title Lessons in US Extra-Territoriality. The notice states:

US government agencies are adopting a more expansive and aggressive view of their jurisdiction and this is beginning to have very serious consequences for non-US banks and their UK employees.
This one-day workshop will provide an in-depth examination of key US based threats including OFAC, provisions of the Anti Terrorism Act, provisions of PATRIOT, the FATCA provisions of the HIRE Act, extradition and the attitude of the US courts to questions of client confidentiality and disclosure.
This workshop proves, lest there was any doubt, that ‘risk has gone global’ and as a consequence financial institutions must now adopt global risk management strategies.

Feb. 1: Euractiv has a story about President Sarkozy’s concern that speculation in the derivatives markets increases commodity prices and which suggests this concern may be reflected in forthcoming regulatory proposals. The article includes the following passage:

Diego Valiante, a research fellow at the Centre for European Policy Studies, a Brussels think-tank, argues that the link between speculation and commodity prices has been overly politicised and that speculation, which is actually good for commodities, is being confused with market manipulation.

Also worth noting is an article Dominique Strauss-Kahn, the Managing Director of the IMF, published in Japan at the be=ginning of the month and which is now in English on the IMF website. He concluded:

One of the principal failings of policymakers in the run-up to the crisis was a lack of imagination, as we failed to see the fault lines embedded in the global economic and financial system. Going forward, our next failing should not be a lack of cooperation. We must reach across old dividing lines—both within economies and between them—and work together to build a stronger, more resilient, fairer global economy. The welfare of the generations to come depends on it.

Feb. 2: Here is a CME video about snowfall futures and options :

WEEK 2: Jan 24-28: On Monday we will continue to focus on the National Australia Bank case. (See Materials for the First Week: Jurisdiction and Securities Fraud). We saw that Scalia sets out a bright-line test: s 10(b) and Rule 10b-5 cover transactions in securities listed on US exchanges and domestic transactions in other securities. That formulation of the territorial effect of the statute and rule is quite narrow. Let’s begin with the questions Justice Stevens raises about the application of the new interpretation (see p 16). Do you think Congress really meant to exclude such cases ? Is Scalia’s approach an invitation to US issuers to avoid onerous US securities regulation by listing their securities in other jurisdictions?
Please also read to page 22 of Materials Chapter 1: Introduction.

Jan. 21, 2011: please note that I will be moving the material below to the spring 2011 archive page, and removing it from this page, in the next few days.

ASSIGNMENT FOR THE FIRST WEEK
In the first two classes of the semester we will consider issues relating to jurisdiction over claims of securities fraud. The material is primarily US material, although the actors are not all US persons and entities. Please read this materials packet before the first class:

Materials for the First Week: Jurisdiction and Securities Fraud

Please also read Class Policies 2011

[After we have read this packet we will be reading and discussing Materials Chapter 1: Introduction - you do not need to read this yet and I will post assignments with respect to this material after classes begin.]

Jan. 16, 2011: At some point soon please read Paul Krugman’s article in the New York Times Magazine for Sunday Jan. 16, 2011, Can Europe Be Saved? (in the hard copy version the Can Europe Be Saved title appears on the front cover, the article itself has the title “Eurotrashed”). The third packet of materials will focus on issues relating to sovereign debt and this article is directly relevant to that but I think it is also more broadly useful as introductory reading.