Insolvency-remote refers to the legal structure of a securitisation vehicle that is designed to protect investors from the bankruptcy of the originator or sponsor of the securitisation transaction.
The insolvency-remote structure is achieved by setting up the securitisation vehicle as a special purpose vehicle (SPV) that is legally separate from the originator or sponsor. The SPV is typically structured as a trust or a limited liability company.
The insolvency-remote structure is important for investors because it protects them from the risk that the originator or sponsor of the securitisation transaction will go bankrupt and be unable to repay the investors. If the originator or sponsor goes bankrupt, the assets of the SPV will not be affected.
There are a number of applications for insolvency-remote structures in securitisation. One application is to reduce the risk of default for investors. By isolating the assets of the SPV from the originator or sponsor, investors are less likely to lose money if the originator or sponsor goes bankrupt.
Another application of insolvency-remote structures is to facilitate the sale of securitisation securities. Investors are more likely to invest in securitisation securities if they are confident that their investment is protected from the risk of bankruptcy.
Here are some other applications of insolvency-remote structures in securitisation:
- To make securitisation transactions more attractive to investors
- To reduce the cost of borrowing for the originator or sponsor
- To increase the liquidity of the securitisation market
Insolvency-remote structures can be a useful tool for both investors and originators or sponsors. For investors, it can help to reduce the risk of default and to make securitisation transactions more attractive. For originators or sponsors, it can help to reduce the cost of borrowing and to increase the liquidity of the securitisation market.