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Limited recourse: Difference between revisions
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Of a {{tag|contract}}, that the [[obligor]]’s obligations under it are limited to a defined pool of assets. You see this a lot in [[repackaging]]s, [[securitisation]]s and other structured transactions involving [[espievie]]s. | {{g}}Of a {{tag|contract}}, that the [[obligor]]’s obligations under it are limited to a defined pool of assets. You see this a lot in [[repackaging]]s, [[securitisation]]s and other structured transactions involving [[espievie]]s. | ||
===Limited recourse and investment funds=== | |||
Investment funds tend to be single corporations which and issue shares or units to investors and use the issue proceeds to buy securities investments and enter swaps, loans and other transactions with brokers. Here the brokers, being creditors are [[Capital structure|structurally senior]] to the fund’s investors, who rank as [[equityholder]]s. So the main reason for limiting the [[broker]]’s recourse to the [[SPV]]’s assets is to stop the broker putting the company into formal bankruptcy procedures once all its assets have been liquidated and distributed [[pari passu]] to creditors. Now, why would a [[broker]] want to put an empty [[SPV]] into liquidation? Search me. Why, on the other hand, would the directors of an empty SPV be anxious not to be pout into liquidation? Because it may bar them as acting as directors on companies in the future, and that is their day job. Unlike a normal commercial undertaking, an [[SPV]] runs on autopilot. The directors outsource executive and trading decisions to an investment manager. They are really nominal figures. You have them because you have to have them. Their main job is to ensure accounts are prepared and a return filed each year. | |||
So all an [[investment fund]]’s limited recourse clause needs to say is: | |||
:Our recourse against the Fund will be limited to its assets, rights and claims. One they have been finally realised and their net proceeds applied under the agreement, the Fund will owe us no further debt and we may not take any further steps against it to recover any further sum. | |||
===[[Repackaging]]s and [[SPV]]s with contractually [[segregated]] pools=== | |||
If the [[SPV]] has got segregated compartments in it (that is, it is issuing multiple series of securities, the limitation of a claim in this way goes hand-in-hand with a [[security interest]] over the defined pool of assets. | |||
Security and limited recourse are fundamental structural aspects of contracts with [[Special purpose vehicle|special purpose vehicles]] and [[investment fund]]s, so if you feel the urge to challenge these provisions, do yourself and everyone else on the deal a favour: save your breath. In the immortal words of the East Enders: “Leave it Phil! Leave it! He's not worth it.” | Security and limited recourse are fundamental structural aspects of contracts with [[Special purpose vehicle|special purpose vehicles]] and [[investment fund]]s, so if you feel the urge to challenge these provisions, do yourself and everyone else on the deal a favour: save your breath. In the immortal words of the East Enders: “Leave it Phil! Leave it! He's not worth it.” | ||