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. | 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> | |||
Revision as of 14:06, 15 October 2020
In the world of 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 for each deal would do through the exigencies of corporation law and the corporate veil. That said, with 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 obligations 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.
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 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.[1]
- ↑ Come to think of it he may have forgotten to file a Slavenburg.