Securitization of Executory Future Flows as Bankruptcy-Remote True Sales

Abstract

Asset-backed securitization transactions have become a widely favored method of corporate finance.! Companies securitize everything from the mundane accounts receivable, credit card receivables, and loan receivables,2 to the more exotic music royalties,' taxicab medallions, and unpaid real estate taxes.5 While there are many reasons to securitize,6 the ability to eliminate bankruptcy risk to the creditor ranks as one of the most prominent.7 In a regular unsecured lending arrangement, one of the primary risks the unsecured lender faces is that the borrower will go bankrupt and the lender will have a subordinate claim8 over the remaining assets in the borrower's bankruptcy estate. Even in a regular secured lending arrangement, the lender risks enduring a lengthy and costly bankruptcy process before being able to claim possession of collateral.9 These risks can be substantially eliminated by a securitization that is structured through a special purpose vehicle (SPV) to create