Template:Repackaging limited recourse capsule: Difference between revisions

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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.
Where there are 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]] each time would do through the exigencies of corporation law and the [[corporate veil]].   


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.   
With [[secured, limited recourse obligation]]s there is a ''quid pro quo'': all creditors are known; they are yoked to the same ladder of priorities; they all have agreed to limit their claims to the liquidated value of the secured assets underlying the deal. In return, the [[espievie]] grants them a first-ranking security over those assets — mediated between them by the agreed priority structure — and this stopping any interloper happening by and getting its mitts on the [[espievie]]’s assets.   


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.  
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, and the intercreditor arrangements, too, are fully mapped out. 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. Secured limited recourse is like a [[nomological machine]]; a [[model]]; it is a simplified account where everything works as it should do, there are no unforeseen contingencies, and all outcomes are planned. <br>
 
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 [[Struwwelpeter|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>

Revision as of 20:19, 9 April 2021

Where there are multi-issuance repackaging SPVs, 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 each time would do through the exigencies of corporation law and the corporate veil.

With secured, limited recourse obligations there is a quid pro quo: all creditors are known; they are yoked to the same ladder of priorities; they all have agreed to limit their claims to the liquidated value of the secured assets underlying the deal. In return, the espievie grants them a first-ranking security over those assets — mediated between them by the agreed priority structure — and this stopping any interloper happening by and getting its mitts on the espievie’s assets.

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, and the intercreditor arrangements, too, are fully mapped out. 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. Secured limited recourse is like a nomological machine; a model; it is a simplified account where everything works as it should do, there are no unforeseen contingencies, and all outcomes are planned.