Curriculum·Graduate·G802
The SPV and Bankruptcy Remoteness
Enron, 2001. Enron used special-purpose vehicles, separate legal entities, to move debt and risky assets off its own balance sheet, and the whole point of such a vehicle is to isolate assets and liabilities from the parent so each stands on its own.
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Lesson 1 opens on
Enron, 2001
Enron used special-purpose vehicles, separate legal entities, to move debt and underperforming assets off its own balance sheet, and the entire point of such a vehicle is to isolate assets and liabilities from the parent so that each stands on its own. Enron's did the opposite. They were not truly independent: they were capitalized with Enron's own stock and controlled by Enron insiders, so they had no separate substance from Enron itself.
The lessons
- G802-01Why the SPV existsExplain that an SPV exists to isolate an asset from the sponsor that created itabout 33 min · opens on Enron, 2001
- G802-02Bankruptcy remoteness, and what breaks itDefine bankruptcy remoteness as a design that reduces, not eliminates, the risk of being pulled into a sponsor's bankruptcyabout 33 min · opens on General Growth Properties, 2009
- G802-03The claim the token actually representsExplain that a token represents a specific legal claim, which may differ from how it is marketedabout 34 min · opens on Lehman Brothers Minibonds, 2008
- G802-04When the sponsor fails: does the asset surviveExplain that an asset survives the sponsor's failure only if it was genuinely segregated and beyond the sponsor's creditorsabout 34 min · opens on Sentinel Management Group, 2007