Structuring Special Purpose Entities in Real Estate Finance Transactions: Latest Developments

Description

Lenders require that the owner/borrower of commercial real estate be formed as an SPE as these entities are less likely to become insolvent because of their own activities and can be adequately insulated from the insolvency of related parties. The goal is for the entity to be “bankruptcy remote.”

SPEs are intended to protect the assets of the entity against credit risk of other entities, including the former owner of the assets. Legal separation is achieved by three structuring techniques: true sales, SPEs (or separateness issues), and bankruptcy-remote vehicle.

The bankruptcy-remote SPE must be structured so it is unlikely to file, or have filed against it, a bankruptcy petition, as well as to prevent substantive consolidation with the transferor in the event of the transferor’s bankruptcy. SPE bankruptcy-remote strategies continue to be tested in bankruptcy cases and counsel must apply lessons from recent case law to draft structured financing documentation that minimizes bankruptcy risks.

Listen as our authoritative panel of real estate finance and bankruptcy attorneys discusses best practices for structuring SPEs to achieve bankruptcy remoteness and avoid substantive consolidation. The panel will review recent bankruptcy rulings impacting bankruptcy proofing strategies.