Presenting a live 90-minute webinar with interactive Q&A Structuring Special Purpose Securitization Vehicles to Attain Bankruptcy Remoteness Avoiding Substantive Consolidation and Achieving True Sale With SPVs TUESDAY, NOVEMBER 12, 2013 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: John C. Keith, Attorney, Valensi Rose , Los Angeles Michael V. Blumenthal, Partner, Thompson & Knight , New York Demetra L. Liggins, Partner, Thompson & Knight , Houston The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
FOR LIVE EVENT ONLY Sound Quality If you are listening via your computer speakers, please note that the quality of your sound will vary depending on the speed and quality of your internet connection. If the sound quality is not satisfactory, you may listen via the phone: dial 1-888-450-9970 and enter your PIN when prompted. Otherwise, please send us a chat or e-mail sound@straffordpub.com immediately so we can address the problem. If you dialed in and have any difficulties during the call, press *0 for assistance. Viewing Quality To maximize your screen, press the F11 key on your keyboard. To exit full screen, press the F11 key again.
FOR LIVE EVENT ONLY For CLE purposes, please let us know how many people are listening at your location by completing each of the following steps: In the chat box, type (1) your company name and (2) the number of • attendees at your location Click the SEND button beside the box • If you have purchased Strafford CLE processing services, you must confirm your participation by completing and submitting an Official Record of Attendance (CLE Form). You may obtain your CLE form by going to the program page and selecting the appropriate form in the PROGRAM MATERIALS box at the top right corner. If you'd like to purchase CLE credit processing, it is available for a fee. For additional information about CLE credit processing, go to our website or call us at 1-800-926-7926 ext. 35.
FOR LIVE EVENT ONLY If you have not printed the conference materials for this program, please complete the following steps: • Click on the ^ symbol next to “Conference Materials” in the middle of the left - hand column on your screen. • Click on the tab labeled “Handouts” that appears, and there you will see a PDF of the slides for today's program. • Double click on the PDF and a separate page will open. • Print the slides by clicking on the printer icon.
Structuring Special Purpose Securitization Vehicles to Obtain Bankruptcy Remoteness Michael Blumenthal John C. Keith Demetra Liggins 999999.999999 ACTIVE 6105481.4
What is bankruptcy remoteness? ● Pretty self-explanatory: the status of being remote – or insulated – from the prospect of a bankruptcy or the effects of a bankruptcy. ● Probably for as long as there has been a bankruptcy law, creditors have attempted to insulate themselves from the impact of that law. 6
Why does bankruptcy remoteness matter? ● Bankruptcy affects the balance of power between debtors and creditors, by providing debtors with substantial protections. ● Bankruptcy affects the balance of power between different creditors, who must compete for the limited resources of the debtor within the confines of the bankruptcy law. ● Examples: ● Automatic stay ● Discharge of prepetition debts 7
What is a bankruptcy remote special purpose entity/vehicle? ● The terms “special purpose entity” (“SPE”) and “special purpose vehicle” (“SPV”) are used interchangeably. ● "A SPE is an independent legal entity that can be used to mitigate the disruption caused by a bankruptcy filing by all or some of the members of a corporate group. ” ● "Ideally, the SPE will be a newly created” business entity, and, "most commonly, SPEs are either limited partnerships or limited liability companies. ” ● Samantha J. Rothman, Lessons from General Growth Properties: The Future of the Special Purpose Entity , 17 Fordham J. Corp. & Fin. L. 227, 229-30 (2012). 8
What is a bankruptcy remote special purpose entity/vehicle? ● SPEs are a securitization tool for lenders. ● “[T]he new entity will take title to the property that serves as collateral for the loan. Transferring the property collateral to the [SPE] accomplishes the goal of separating the property collateral from the bankruptcy risks of its prior owner. ” ● Adam B. Weissburg & John Matthew Trott, Special Purpose Bankruptcy Remote Entities , Los Angeles Lawyer (January 2004). 9
What is a bankruptcy remote special purpose entity/vehicle? ● "The SPE's corporate documents will generally contain restrictive provisions requiring that the SPE be limited to its stated purpose of holding the collateral assets,” thereby "reducing the risk of the SPE becoming insolvent. ” ● "In addition, a SPE's bankruptcy remote provisions will also generally require that in order to file for bankruptcy voluntarily, there must be unanimous consent of the SPE's directors or partners with an 'independent' director, partner, or managing member of the SPE," who is generally "designated by the lender and can presumably veto any suggestion of the SPE filing a voluntary bankruptcy petition. ” ● Samantha J. Rothman, Lessons from General Growth Properties: The Future of the Special Purpose Entity , 17 Fordham J. Corp. & Fin. L. 227, 230-32 (2012). 10
Why do lenders care? ● Ratings agencies, large loan originators and other major market players (collectively, the “rated market”) view the SPE structure as important for ensuring that an SPE’s creditors will not potentially compete with creditors of another entity. 11
Why did SPEs/SPVs emerge as a tool to achieve bankruptcy remoteness? ● The means by which lenders have endeavored to achieve bankruptcy remoteness have developed over the years. ● Although by now an established securitization tool for lenders, bankruptcy remote SPVs are, in the long view, a recent permutation of these endeavors. ● Earlier efforts focused on advance contractual waivers of the protections of bankruptcy law, which were met with judicial hostility. 12
Judicial Hostility to Waivers of Bankruptcy Law Protections ● Advance waivers of the right to file bankruptcy are unenforceable. ● “To sustain a contractual obligation of this character would frustrate the object of the Bankruptcy Act. ” ● The “Bankruptcy Act would in the natural course of business be nullified in the vast majority of debts arising out of contracts, if this were permissible. ” ● In re Weitzen , 3 F. Supp. 698-99 (S.D.N.Y. 1933) (citing Fed. Nat. Bank v. Koppel , 253 Mass. 157 (1925). 13
Judicial Hostility to Waivers of Bankruptcy Law Protections ● "It is a well settled principal that an advance agreement to waive the benefits conferred by the bankruptcy laws is wholly void as against public policy. ” ● In re Tru Block Concrete Prods., Inc., 27 B.R. 486, 492 (Bankr. S.D. Cal. 1983). 14
Judicial Hostility to Waivers of Bankruptcy Law Protections ● Waivers of specific bankruptcy protections are also unenforceable. ● Automatic stay (11 U.S.C. § 362) ● In re Shady Grove Tech Ctr. Assocs. Ltd. Partnership, 216 B.R. 386, 390 (Bankr. D. Md. 1998) (“self -executing clauses in pre- petition agreements purporting to provide that no automatic stay arises in a bankruptcy case are contrary to law and hence unenforceable, and ... self-executing clauses in prepetition agreements ... to vacate the automatic stay are likewise unenforceable."). ● In re Pease, 195 B.R. 431, 435 (Bankr. D. Neb. 1996) ("The Bankruptcy Code pre-empts the private right to contract around its essential provisions, such [as] those found in 11 U.S.C. § 362.") 15
Judicial Hostility to Waivers of Bankruptcy Law Protections ● Waivers of specific bankruptcy protections are also unenforceable. ● Right to a discharge or to discharge particular debts. ● Johnson v. Kriger (In re Kriger), 2 B.R. 19, 23 (Bankr. D. Or. 1979) ("It is a well settled principle that an advance agreement to waive the benefit of a discharge in bankruptcy is wholly void, as against public policy."). ● Giaimo v. Detrano (In re Detrano), 222 B.R. 685, 688 (Bankr. E.D.N.Y. 1998) ("As a matter of superseding federal bankruptcy policy ... , a prepetition waiver of a discharge of a particular debt or of all debts is against public policy and unenforceable.") 16
Judicial Hostility to Waivers of Bankruptcy Law Protections ● Ipso facto clauses are also unenforceable. ● “An ipso facto clause is a provision in an executory contract or unexpired lease that results in a breach solely due to the financial condition or the bankruptcy filing of a party. ” ● “Such clauses are generally unenforceable in bankruptcy." ● In re Cole , 226 B.R. 647, 652 (B.A.P. 9th Cir. 1998) 17
SPE’s AND NECESSARY PROVISIONS ● Why an SPE? ● Preserve separateness and avoid substantive consolidation ● Limit other potential liabilities ● Limit ability to file bankruptcy ● Sole purpose is to own the property or assets being financed ● In purpose section ● May do all other things necessary in connection with owning and operation 18
Recommend
More recommend
