Last month, Orrick’s Restructuring team began a three-part look at the American Bankruptcy Institute’s Chapter 11 Reform Report. In part one we looked at issues related to confirmation, valuation, financing and asset sales. This second part focuses on modifications to the Bankruptcy Code’s “safe harbors” for derivatives and other complex financial transactions. The final part will focus on professional compensation, treatment of executory contracts and other interesting topics.

In This Issue:

- Current State of the Law.

- Commission Recommendations.

- Rolling Back Safe Harbor Protections.

- Limiting Safe Harbor Protections.

- Clarifying Revisions.

- Other Changes.

- Excerpt from Rolling Back Safe Harbor Protections:

The Commission recommends that the safe harbor protections for repurchase agreements and securities contracts should revert to their respective pre-2005 definitions thereby eliminating the safe harbor protections for mortgages and mortgaged-backed securities. Alternatively, the Commission recommends that, at the very least, the safe harbor protections should exclude repurchase agreements and securities contracts that have the “economic attributes of traditional mortgage warehouse facilities”, that are more akin to committed secured financing arrangements than so-called “true repurchase agreements”.