In November 2017, Capital One Financial Corp.’s financial services division in Plano decided to exit the mortgage origination and servicing business while continuing to expand its market-leading auto finance business.
“We determined that our originations business did not have sufficient scale to be competitive in a market where scale really matters,” Capital One’s billionaire founder and CEO Richard Fairbank said on a conference call with analysts.
Two months later, the Capital One team assessed its options for marketing and selling the unit. It was no simple task for Capital One to shed 113,000 mortgages in the portfolio with an outstanding principal balance of $17 billion.
“A sale of this magnitude, in a single transaction, to a single buyer is historic to say the least as it represents one of the largest residential loan sales ever by a private party,” Capital One Managing Vice President and Chief Counsel Arash Mostafavipour wrote in nominating Capital One and Assistant General Counsel Elizabeth Chostner for the 2018 Outstanding Corporate Counsel Awards.
“The process that Capital One designed at the outset to allow prospective purchasers to conduct the requisite due diligence of the loans to price the portfolio, draft and negotiate contracts and ultimately close the transaction in May 2018 further emphasizes the level of sophistication and error-free navigation needed to execute such a large and complex transaction,” Mostafavipour said.
The Association of Corporate Counsel’s DFW Chapter and The Texas Lawbook are pleased to announce that the Capital One legal team that worked on the transaction is a finalist for the 2018 M&A Deal of the Year Award.
In addition, Chostner, a six-year veteran of the Capital One legal department, is a finalist for the 2018 Senior Counsel of the Year Award for a Midsized Legal Department.
“Elizabeth’s passion for the work was evident in her constant focus on moving the transaction forward in a well-managed way, always keeping focus on managing the customer experience, legal and reputational risks associated with the transaction and progress of the overall transaction on a strict and accelerated timeline,” Mostafavipour said.
Capital One launched the sale process in March. Two months later, the bank sold the portfolio for undisclosed terms to Credit Suisse unit DLJ Mortgage Capital, which reportedly resold most of the mortgages to Pacific Investment Management Co.
The transaction required work from a lot of parties across the bank, including treasury, corporate development, operations, compliance and risk along with the legal department. The groups formed a cross-functional working team to support the sale with help from attorneys at Wachtell Lipton Rosen & Katz, which had counseled the bank on other complex transactions.
After careful consideration of the alternatives, Chostner said the legal team solicited bids on an “all-or-nothing” basis for the portfolio from a small group of large banks and investment firms “on a strict and accelerated timeline.”
A 2005 graduate of the University of Missouri-Columbia School of Law, Chostner said the legal work – handled by the so-dubbed “Capital One Project Spirit Legal Team” – was accomplished through a deep partnership between Capital One’s corporate, advisory and strategic team, the financial services team and Wachtell.
“The legal teams worked tirelessly to negotiate, execute and close the transaction,” she wrote.
Capital One CFO R. Scott Blackley said in the statement announcing the sale that strong market demand enabled the bank to negotiate and sign the complex transaction “more quickly than we thought possible.”
Chostner said the team also executed the sale and service transfer in a “well-managed and compassionate manner” that allowed Capital One to transition its associates to other employment opportunities, both within the bank and in the Dallas-Fort Worth area.
“The organized transaction led Capital One to continued growth trajectory in other service offerings,” she wrote.
Indeed, Capital One chalked up a 7.8 percent growth rate of its auto loan business between the second quarter of 2017 and the second quarter of 2018, versus 3 percent for all U.S. auto loans and 5.5 percent for competitor Ally Financial, according to stock analysis provider Trefis.
While the project was unquestionably a team effort, lawyers and executives familiar with the transaction point to Chostner as the key player in getting the deal done.
“While Elizabeth was navigating the day-to-day ins and outs of the transaction, she did not lose sight of leading with her heart as it pertained to the practical impact the sale would have on Capital One’s associates, including her legal colleagues who also supported the mortgage servicing business,” Mostafavipour said.
“Her compassion for her peers was apparent as she ensured that each of the impacted attorneys had the necessary information, resources and connections to find their next step in their career, either within Capital One or externally.”