Client Alerts & Publications Archive

Environmental, Social and Governance (“ESG”) investing continued to grow throughout 2021 and this growth is expected to continue into 2022 as ESG investments are estimated to surpass $41 trillion in assets under management globally by the end of the year. ESG investing occurs when investors make investment decisions based on a company’s environmental, social and governance policies and performance alongside traditional financial metrics. As investment firms, lending institutions, and individual investors are increasingly looking at ESG factors to identify material risks and growth opportunities, a number of trends are expected to emerge in the upcoming year. These include regulation of ESG disclosures, growth in green technology, renewable energy and infrastructure investments, and heightened standards associated with sustainable finance.

On February 9, 2022, the Securities and Exchange Commission (the “Commission”) voted 3 to 1 to propose new and amended rules under the Investment Advisers Act of 1940 (the “Advisers Act”) to require advisers to private funds to provide additional disclosures to investors in such funds, prohibit certain types of preferential treatment to investors and impose new requirements related to fund audits, books and records and adviser-led secondary transactions.

On January 18, 2022, Judge Laura Taylor Swain of the United States District Court for the District of Puerto Rico entered an order under PROMESA (as defined below) confirming a Plan of Adjustment (the “Plan”) of the Commonwealth of Puerto Rico (the “Commonwealth”), the Employees Retirement System of the Government of Puerto Rico (the “ERS”), and the Puerto Rico Public Buildings Authority (the “PBA”).¹ The Plan’s confirmation is a major milestone for the Commonwealth and its creditors. The Commonwealth’s restructuring proceeding under Title III of PROMESA is the largest municipal restructuring in United States history.

On December 22, 2021, in a memorandum opinion on a motion to dismiss, the Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) (i) provided further guidance as to what qualifies as “voluntary” redemption of debt for purposes of make-whole claims, (ii) held that, without more, a make-whole payment is not triggered by a redemption automatically resulting from a voluntary bankruptcy filing, if the governing contract only provides for payment of such premium prior to “maturity” and (iii) determined that neither the Bankruptcy Code nor the “solvent debtor exception” requires a solvent debtor to pay an unimpaired unsecured creditor post-petition interest at the applicable contract rate, finding that payment of interest at the federal judgment rate is sufficient. The Bankruptcy Court left open whether make-whole claims could be disallowed as unmatured interest.

The Internal Revenue Service (“IRS”) has released a revised Form 8038‑CP, Return for Credit Payments to Issuers of Qualified Bonds, including new Schedule A, Specified Tax Credit Bonds Interest Limitation Computation and related instructions. The form and instructions were updated to accommodate electronic filing of Form 8038‑CP in 2022.

As originally discussed in our 2019 Action Item, the continuing, low interest rate environment has caused many insurance companies to turn to private credit funds to diversify their credit portfolios and increase their returns. Private credit funds that offer insurance companies the opportunity to participate in their funds indirectly through a rated-debt feeder fund structure provide insurance companies an opportunity to lower their risk-based capital requirements when compared with investing directly in such credit funds. As discussed in our 2021 Chapman Insights, investing in private credit funds through a rated-debt feeder structure is not without legal complexities, but many insurance companies have found those complexities to be worth the regulatory capital relief that may be available by investing through a rated-debt feeder structure.

The IRS published final LIBOR transition regulations in the Federal Register on January 4, 2022. The regulations allow modifications of debt instruments and other contracts to replace LIBOR without triggering a reissuance or deemed exchange if certain conditions are met.

This article in the Journal of Taxation of Financial Products outlines tax-exempt municipal debt securitization transactions and associated tax issues. Chapman authors, David Nirenberg, Brent Feller, and Steven Kopp, provide an in-depth look at the primary tax issues for parties to both single-class and multiple-class tax-exempt bond securitization transactions.

The Occupational Safety and Health Administration released its anticipated COVID-19 Vaccination and Testing: Emergency Temporary Standard, which will require that workers at large private sector businesses be vaccinated or undergo weekly COVID-19 testing.

On September 16, 2021, the Securities and Exchange Commission charged Sweetwater Union High School District, a San Diego County, California, school district serving approximately 47,000 students, and its former Chief Financial Officer, Karen Michel, with making material misstatements and omissions in connection with the District’s April 2018 $28 million bond issue.

Lenders and investors are taking different approaches to building ESG portfolios based on the entity’s own preferences and values. However, one widely used tool involves screening of select assets or transactions that align with those values.

The US Securities and Exchange Commission Division of Examinations has released its 2021 Examination Priorities. A discussion of the exam priorities is included in this article.

We are pleased to share highlights of the firm’s environmental, community, and justice initiatives over the past year. Chapman’s Social Impact and Sustainability Communication on Progress report was prepared with guidance from our Social Impact and Sustainability Task Force and is part of Chapman’s commitment to the United Nations Global Compact.

In 2017, the Financial Conduct Authority, the U.K. authority that oversees the London interbank offered rate, announced that LIBOR may be phased out after the end of 2021. The announcement applied to all currency and term variants of LIBOR, including U.S. dollar denominated LIBOR.

The date of the General Primary Election to be held in 2022 has been changed from March 15, 2022, to June 28, 2022. On May 31, 2021, the Illinois General Assembly adopted Senate Bill 825, which became Public Act 102-0015 after being signed into law by the Governor on June 17, 2021. 

On June 10, 2021, OSHA issued an Emergency Temporary Standard (ETS) applicable to the healthcare industry regarding COVID-19. The ETS applies to settings where any employee provides healthcare or healthcare support services, with certain specified exceptions. 

As Environmental, Social and Governance (ESG) performance becomes more prominent, institutional investors, asset managers, financial institutions, and other stakeholders are increasingly looking at ESG factors in making investment and lending decisions. In doing so, these entities are relying on a number of information sources, including ESG ratings and reports.

On April 13, the Department of Labor released guidance on the prohibited transaction exemption pertaining to fiduciary investment advice for retirement investors, employee benefit plans and investment advice providers. 

A recent federal district court decision out of Massachusetts found that a bank was the true lender on a loan subsequently transferred to a trust consisting of student loans. Robinson and Spears v. Nat’l. Collegiate Student Loan Trust 2006-2, 2021 WL 1293707, Case No. 20-cv-10203 ADB (D. Mass. April 7, 2021).

At today’s Earth Day Climate Summit, President Joe Biden announced to world leaders that the United States is committed to cutting its greenhouse gas emissions by 50% to 52% from 2005 levels by 2030.

Last week the Loan Syndications and Trading Association, the Loan Market Association, and the Asia Pacific Loan Market Association jointly published their first ever Social Loan Principles.

On April 14, the U.S. Department of Labor announced guidance for plan sponsors, plan fiduciaries, record keepers, and plan participants on best practices for maintaining cybersecurity, including tips on how to protect the retirement benefits of participants.

In the past few days, two courts have actions that are of significance to marketplace lenders and their funding sources. 

On April 9, 2021, the Securities and Exchange Commission Division of Examinations issued a Risk Alert highlighting observations made by the Division from recent examinations of investment advisers, registered investment companies, and private funds offering products and services that incorporate environmental, social, and governance factors.

The Bankruptcy Court for the Eastern District of Michigan has expressed reservations about a Second Circuit decision regarding when transfers to financial institutions’ customers that are settlement payments or made in connection with securities contracts are entitled to protection from avoidance actions under the bankruptcy safe harbors.

The Securities and Exchange Commission this month announced that the Divisions of Corporation Finance, Examinations, and Enforcement are all undertaking climate or ESG-related initiatives. 

The Department of Labor announced that it will not enforce its previously issued final rule regarding plan fiduciaries’ use of environmental, social and governance factors in selecting investments for tax‑qualified retirement plans.

On March 12, the Occupational Safety and Health Commission announced a National Emphasis Program for COVID-19. The NEP is in response to an Executive Order issued by President Biden directing the Secretary of Labor to launch a national program to focus OSHA enforcement efforts related to COVID-19 on industries with the largest numbers of workers at serious risk.

The Securities and Exchange Commission’s Division of Examinations has released its 2021 Examination Priorities. 

Environmental, Social and Governance investing in the United States has reportedly reached an estimated $250 billion in assets under management and is expected to see continued growth in 2021 and beyond. 

Investor interest in rated-debt feeder funds has grown since we first issued our Action Item concerning such funds in March 2019. We expect this interest to continue as the private credit market expands through the COVID-19 crisis.

On February 4, the U.S. Department of Justice and Federal Trade Commission announced they would be suspending the practice of allowing early ends to the merger review process under the Hart-Scott-Rodino Act.

The Financial Industry Regulatory Authority, Inc. recently issued its 2021 Report on FINRA’s Risk Monitoring and Examination Activities. The new Report is designed to assist FINRA member firms’ compliance programs by providing annual insights from FINRA’s ongoing regulatory operations.

On January 26, Moody’s Investors Service announced it had published a new methodology for rating US public school districts that provide education or educational services.

On December 27, the Consolidated Appropriations Act, 2021 was signed into law, which, among other things, contains an important amendment to Section 547 of the United States Bankruptcy Code.

On December 22, the U.S. Securities and Exchange Commission adopted amended Rule 206(4)‑1 under the Investment Advisers Act of 1940, as amended, which addresses investment advisers marketing their services to clients and investors

On November 17, the Securities and Exchange Commission adopted amendments to Rule 302(b) of Regulation S-T, which will provide more flexibility in connection with SEC filings by allowing the use of electronic signatures in authentication documents.

On October 30, the Department of Labor issued a final rule which amends its 1979 investment duties regulation under the Employee Retirement Income Security Act of 1974, as amended, to update and clarify its position with respect to ERISA plan fiduciaries’ use of environmental, social and governance factors in selecting investments.

This fall, the Securities and Exchange Commission has proposed additional avenues for businesses to raise capital away from the use of registered broker‑dealers.

Under the expanded Medicare Accelerated and Advance Payments Program, more than 22,000 Medicare Part A providers and 28,000 Medicare Part B suppliers requested and received accelerated or advance payments from the Centers for Medicare & Medicaid Services to help ease financial strain and uncertainty caused by the COVID-19 pandemic.

In June, the IRS issued several notices that provide more details on the SECURE Act, passed in late 2019, and the CARES Act, passed in late March. This Client Alert will cover two primary topics: Coronavirus-Related Distribution Rules and the 2020 RMD Waiver Rule.

In 2015, the Second Circuit Court of Appeals issued an opinion finding that, under the doctrine of federal preemption, a non-bank assignee of a bank loan could not charge and collect the rates and fees that the bank could charge and was therefore subject to state law usury limits.

As companies default under their credit agreements, lenders have to decide what course of action is appropriate to effectuate their goals. Should the lender give the borrower breathing room by entering into a forbearance agreement in exchange for certain milestones, or is more aggressive enforcement action required?

The Office of the Comptroller of the Currency recently issued its final rule codifying as a regulation that the interest charged on loans that is permissible before the loan is transferred remains in effect after the loan is transferred.

The parties to the closely watched litigation by the Attorney General of Colorado as Administrator of the Colorado Uniform Consumer Credit Code against two marketplace lending platforms have agreed to settle the litigation.

This is the third and final Client Alert of a three-part series relating to executing a Strict Foreclosure. As discussed in our previous Client Alerts, it is imperative to focus on who is going to run the business after consummating the Strict Foreclosure.

The CARES Act, which was designed to support individuals and businesses affected by the COVID-19 pandemic, was signed into law on March 27. This article summarizes various tax provisions in the CARES Act.

The CARES Act, which was enacted to support individuals and businesses affected by the COVID-19 pandemic, provides that borrowers experiencing financial hardship due to the national emergency declared by the President, may request and obtain forbearance on certain federally backed mortgage loans.

The Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation have been quite active in issuing or proposing new regulations and initiatives focused on financial technology and innovation in financial services.