True sale: Difference between revisions
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{{ | {{a|repack|}}“[[True sale]]” is an accounting concept relating to the disposal of assets under a sale and purchase or other form of [[title transfer]]. | ||
The [[true sale]] analysis requires that a | The [[true sale]] analysis requires that a person buying an asset has no contractual restrictions on its right to deal with their own property as any legal and beneficial owner would. In particular the ''selling'' party should not be able to control the asset, and should have no right to require its redelivery or future repurchase. | ||
The motivation for this request is simply to support the [[true sale]] analysis and avoid [[recharacterisation]] risk. | The motivation for this request is simply to support the [[true sale]] analysis and avoid “[[recharacterisation]]” risk. | ||
This is to ensure that in the vendor’s [[insolvency]] there is no chance of the vendor’s [[liquidator]] challenging the transfer of the asset to the purchasing party on the grounds that it was not a true sale for accounting purposes, and [[recharacterising]] it as a loan or an unperfected pledge or other form of [[security]] which may be treated less favourably in the distribution of insolvency proceeds. | This is to ensure that in the vendor’s [[insolvency]] there is no chance of the vendor’s [[liquidator]] challenging the transfer of the asset to the purchasing party on the grounds that it was not a true sale for accounting purposes, and [[recharacterising]] it as a loan or an unperfected pledge or other form of [[security]] which may be treated less favourably in the distribution of insolvency proceeds. | ||
A [[true sale opinion]] is a [[ | In the [[global financial crisis]] we saw, of course that the opposite was just as true: it wasn’t the purchaser trying desperately to hang on to the diamonds and gemstones bequeathed it by its broker, but to the contrary, the purchaser arriving with a pitchfork mob at the broker’s reception demanding to return the dented, rusting cheapest-to-deliver piece of crap you gave it, and instead to have its money back. In particular, mezzanine tranches of CDOs. | ||
A [[true sale opinion]] is a “[[would-level opinion]]” from a [[law firm]] (ideally a [[magic circle law firm|magic circle]] one) confirming that a disposal or [[title transfer]] of collateral amounts to a [[true sale]]. This may segue into a tedious discussion about the technical legal meaning of the word “[[equivalent]]”. | |||
{{sa}} | {{sa}} | ||
Revision as of 13:25, 13 April 2023
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The Law and Lore of Repackaging
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“True sale” is an accounting concept relating to the disposal of assets under a sale and purchase or other form of title transfer.
The true sale analysis requires that a person buying an asset has no contractual restrictions on its right to deal with their own property as any legal and beneficial owner would. In particular the selling party should not be able to control the asset, and should have no right to require its redelivery or future repurchase.
The motivation for this request is simply to support the true sale analysis and avoid “recharacterisation” risk.
This is to ensure that in the vendor’s insolvency there is no chance of the vendor’s liquidator challenging the transfer of the asset to the purchasing party on the grounds that it was not a true sale for accounting purposes, and recharacterising it as a loan or an unperfected pledge or other form of security which may be treated less favourably in the distribution of insolvency proceeds.
In the global financial crisis we saw, of course that the opposite was just as true: it wasn’t the purchaser trying desperately to hang on to the diamonds and gemstones bequeathed it by its broker, but to the contrary, the purchaser arriving with a pitchfork mob at the broker’s reception demanding to return the dented, rusting cheapest-to-deliver piece of crap you gave it, and instead to have its money back. In particular, mezzanine tranches of CDOs.
A true sale opinion is a “would-level opinion” from a law firm (ideally a magic circle one) confirming that a disposal or title transfer of collateral amounts to a true sale. This may segue into a tedious discussion about the technical legal meaning of the word “equivalent”.