Securitization and Structured Finance Law

Securitization and Structured Finance Law
Securitization and structured finance law combines multiple legal disciplines to enable originators and owners of assets with a predictable stream of payments, such as residential or commercial mortgage loans, automobile loans and leases, credit card receivables, equipment leases and loans, student loans, trade receivables, film rights, royalty payments, and life settlements, to raise money at lower costs than traditional financing sources. Securitization transforms somewhat illiquid financial assets into liquid and often highly rated securities that can be sold into the capital markets and have a variety of cash flow characteristics tailored to meet the different objectives of a wide variety of investors.

Securitization and structured finance isolates assets from the insolvency risk of the sponsor of that securitization through a true sale of the financial assets to a bankruptcy remote entity. This isolation allows investors to assess the credit risk of the financial assets backing the securities or structured loans without regard to the credit risk of the sponsor. Securitization techniques also may be used as a method of risk transfer.

Achieving these goals requires the integration of multiple legal disciplines for each transaction including (1) laws governing the issuance and of equity or debt securities (including the Securities Act, the Securities and Exchange Act, the Trust Indenture Act, and the Investment Company Act), (2) laws generally applicable to trusts, limited liability companies or corporations, (3) commercial and property law governing the transfer of the assets, perfection of security interests and the issuance of secured debt, (4) bankruptcy or bank insolvency law governing the isolation of the assets from the insolvency risk of sponsors, and (5) tax and ERISA.
Reed Auerbach

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