Bankruptcy-remote
Asset-Backed Securities glossary · Asset Backed Securities
Definition
Describes an SPE structured to have a very low probability of being placed into bankruptcy by its parent or by external creditors.
Bankruptcy-remote in plain English
When a big company packages loans to sell to investors, it puts them inside a tiny standalone legal entity (an 'SPE,' or special-purpose entity) built for that one job. 'Bankruptcy-remote' means that entity is deliberately walled off so that if the parent company goes bankrupt, the loans and their cash aren't dragged into the mess — investors still get paid. It's like keeping your savings in a separate account your reckless roommate can't touch: if they rack up debts, the people they owe can't reach into your money.
Practice Bankruptcy-remote
Why can that legal isolation support cheaper funding than the originator's unsecured debt?
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