Legal Identity of the Bond Issuer and its Legal Form
Through the securitization process, the sponsor transfers the assets to the special legal entity to carry out some specific transaction or series of transactions. One of the key reasons for forming a special legal entity is bankruptcy remoteness. The transfer of assets by the sponsor is considered a legal sale; once the assets have been securitized, the sponsor no longer has ownership rights. Any party making claims following the bankruptcy of the sponsor would be unable to recover the assets or their proceeds. As a result, the special legal entity’s ability to pay interest and repay the principal should remain intact even if the sponsor were to fail—hence the reason why the special legal entity is also called a bankruptcy-remote vehicle.
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