A liquidating trust
These structures are designed to allow an active, dynamic manager to liquidate a portfolio of loans, hence: liquidating trusts.
The manager anticipates selling and resolving all of these loans and reducing them to cash in a finite and relatively short period of time.
To many the words “liquidating trust” connote bankruptcy, but that need not always be the case.
In fact, a liquidating trust can be a cost effective, simplified structure to wind down a solvent company and realize some value for stockholders.
Previously, he was a Managing Director and Co-Head of Special Situations Trading at HSBC Securities, where he headed up credit research. Doheny was a portfolio manager at Fintech Advisory Inc., a hedge fund focusing on undervalued securities and turnarounds in the U. He received a BA from Allegheny College and a Juris Doctor from Cornell Law School. The Res Cap Liquidating Trust was established in December 2013 under the Second Amended Joint Chapter 11 Plan of Residential Capital, LLC, et al.
David Pauker is a turnaround manager and restructuring advisor with more than 25 years of experience advising underperforming companies and their investors. to liquidate and distribute assets of the debtors in the Res Cap bankruptcy case. Ray has extensive experience as a chief restructuring officer and plan administrator in notable bankruptcy cases and situations involving Overseas Shipholding Group Inc., Nortel Networks Inc. The Trust’s mortgage assets include mortgage loans, servicer advances, interest income, real estate owned, trading securities, net of costs to sell the assets.
To be clear, this is a financing tool, not a sales tool.
Depending, of course, on the depths of ugliness in the pool, this is 35-55% leverage with a sponsor holding the risk piece.
With this final distribution, the Trust completed its sole purpose, which was to complete the winding-up of the affairs of REMEC, Inc.
For companies with certain types of illiquid but valuable intellectual property, the liquidating trust’s simplicity and lower cost can make it superior to other alternatives.
For example, for a small biotech with drug development programs out licensed to third parties, the liquidating trust can be a cost effective way to collect milestones and royalties for a period of time while open issues are resolved and a transaction can be closed to monetize the licensor interest.
Recently, the Wall Street Journal highlighted the arrival of “bad loan securities.” If this is a trend, and I both hope and think it is, we clearly have to get a better deal name for these than “Insert Bank Name”, Bad Loan Securities 2012-1.
Securitization of less than ideal conduit product has been with us since the birth of securitization, but reached its apogee in the RTC series, for non-performing loans, in the early to mid 1990s.