Pawan Malik, Managing Director of Navigant Consulting has commented on the first anniversary of the Lehman collapse:

November 6, 2009

“Lehman was a hedge counterparty on numerous structured finance transactions. Typically when the hedge counterparty defaults, and is owed money by the SPV, it ranks below all note-holders. The LBI administrator has challenged this and the courts have agreed to hear them out. If the decision is that LBI can claim the money above note holders, then it has significant ramifications for the structured finance market going forward. Rating agencies have confirmed they will limit the maximum rating of the notes to the rating of the hedge counterparty

With the failure of Lehman, trustees in structured finance transactions are now required to get independent valuations of the mark to market positions hedge trades. The long-dated swap market shows a negative swap/US treasury spread as banks are still unwinding 30 year trades done by Lehman. As a result, transparency has become a very important issue.”

“The market is looking for more granular details about Structured Products, based on clearly transparent assumptions. Structured products now need a range of pricing depending on what the valuation is being provided for.”

“Simplicity is in – complexity is out. We can see clear evidence that risk appetite is returning – capital-guaranteed notes are back in favor.”