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In the world of multi-issuance [[repackaging]] [[SPV]]s, [[secured, limited recourse obligation|secured limited recourse]] obligations are ''de rigueur''. They save the cost of creating a whole new vehicle for each trade, and really only do by [[contract]] what establishing a brand new [[espievie]] for each deal would do through the exigencies of corporation law and the [[corporate veil]]. That said, with [[Segregated portfolio company|segregated cell companies]], you can more or less do this, through the exigencies of the corporate veil, inside a single [[espievie]]. But I digress. | In the world of multi-issuance [[repackaging]] [[SPV]]s, [[secured, limited recourse obligation|secured limited recourse]] obligations are ''de rigueur''. They save the cost of creating a whole new vehicle for each trade, and really only do by [[contract]] what establishing a brand new [[espievie]] for each deal would do through the exigencies of corporation law and the [[corporate veil]]. That said, with [[Segregated portfolio company|segregated cell companies]], you can more or less do this, through the exigencies of the [[corporate veil]], inside a single [[espievie]]. But I digress. | ||
With [[secured, limited recourse obligation]]s there is a ''quid pro quo'': creditors agree to limit their claims to the liquidated value of the secured assets underlying the deal (usually a [[par asset swap]] package), but in return, the issuer grants a first-ranking security over those assets | With [[secured, limited recourse obligation]]s there is a ''quid pro quo'': creditors agree to limit their claims to the liquidated value of the secured assets underlying the deal (usually a [[par asset swap]] package), but in return, the issuer grants them a first-ranking security over those assets, stopping any interloper happening by and getting its mitts on them. | ||
Over the years | The key point to absorb here: ''this is not a material economic modification to the deal''. The line it draws, it draws around ''all'' the assets underlying the deal: the underlying securities, cashflows deriving from them, the [[espievie]]’s rights against custodians and bankers holding them, and its rights against the swap counterparty — everything, tangible or otherwise, of financial value in the transaction is locked down and pledged to secured parties. This kind of [[limited recourse]], in fact, ''doesn’t'' limit recourse: it ''maps'' practical recourse, exactly to the totality of assets that the issuer has available for the purpose: all it saves is the unnecessary process of bankrupting a shell company with nothing left in it in any case. | ||
Over the years this secured, limited recourse technology has been refined and standardised, and now plays little part in the education of a modern-day [[Private practice lawyer|structured finance lawyer]], though, at his mother’s knee, he might once have been told fairy stories about what became of poor Fidgety Phillip when he carelessly put “extinction” rather than “no debt due” in a pricing supplement on his way home from school and burned to death.<ref>Come to think of it he may have forgotten to file a [[Slavenburg]].</ref> |