Liquidating trust securitization
Delaware continues to be on the cutting edge in offering the securitization community a comprehensive legal framework through which to conduct transactions.
That framework includes recent legislation providing some certainty on the issue of what constitutes a "true sale" as well as the constantly evolving alternative entity statutes.
Asset-Backed Securities Facilitation Act On January 17, 2002, the State of Delaware enacted the Asset-Backed Securities Facilitation Act, 6 Del. The ABSFA first provides that: "[a]ny property, assets or rights purported to be transferred, in whole or in part, in the securitization transaction shall be deemed to no longer be the property, assets or rights of the transferor." [6 Del. § 2703A(a)(1)] Given the foregoing provision, to the extent Delaware law applies, the traditional legal criteria used in determining what constitutes a true sale in the context of a securitization is intended to be irrelevant.
The alternative entity statutes generally furnish rules concerning internal governance only in situations where the creating parties have not otherwise provided for such rules in the governing agreement.
Unlike Delaware corporations, there are far fewer statutory provisions defining the rights, powers, duties and authority of Delaware alternative entities and their owners and managers.
The ABSFA further states that: "[a] transferor in the securitization transaction ...
to the extent the issue is governed by Delaware law, shall have no rights, legal or equitable, whatsoever to reacquire, reclaim, recover, repudiate, disaffirm, redeem or recharacterize as property of the transferor any property, assets or rights purported to be transferred, in whole or in part, by the transferor." [6 Del. § 2703A(a)(2)] "[i]n the event of a bankruptcy, receivership or other insolvency proceeding with respect to the transferor or the transferor's property, to the extent the issue is governed by Delaware law, such property, assets and rights shall not be deemed part of the transferor's property, assets, rights or estate." [6 Del. § 2703A(a)(3)] The foregoing provisions facilitate reaching the conclusion that a true sale exists in the context of a securitization transaction where Delaware law applies.
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Although Delaware law permits the LP Agreement to be oral, this is generally not advisable, particularly in securitization transactions.