A securitization separates a pool of assets from the company that created them, so investors can price the assets on their own credit. Done well, it gives an originator cheaper funding than it could get on its own balance sheet. Done poorly, a bankruptcy court can pull the assets back into the originator's estate, or investors can force the originator to buy back loans years later. We represent originators, sponsors, issuers, and investors in term and private securitizations of consumer and commercial loans, equipment and trade receivables, and intellectual property cash flows such as music catalogs, patent royalties, and software license fees.
True Sale And Non-Consolidation
The whole structure depends on two legal conclusions. The first is that the originator truly sold the assets to a special purpose vehicle rather than borrowing against them, so the assets are not property of the originator's bankruptcy estate under Section 541 of the Bankruptcy Code. Courts look at recourse back to the seller, the seller's retained rights, pricing, and how the parties account for the transfer. The second is that a court will not substantively consolidate the SPV with its parent, which depends on separateness: independent directors, separate books and accounts, arm's-length dealings, and no commingling. Rating agencies and investors usually require reasoned legal opinions on both points, and the facts in those opinions need to be true in practice.
Regulation AB And Risk Retention
Publicly registered asset-backed securities are governed by Regulation AB, which requires asset-level data for certain asset classes, shelf eligibility conditions, and ongoing reporting on Forms 10-D and 10-K. Most securitizations by smaller sponsors are instead sold privately under Rule 144A or Regulation D, though investors often expect Reg AB-style disclosure anyway. Under Section 15G of the Exchange Act and Regulation RR, the sponsor generally must retain at least five percent of the credit risk, through a vertical interest, a horizontal residual interest, or a combination, unless an exemption applies. Issuers also need an exemption from the Investment Company Act, often Rule 3a-7, and must comply with Rule 192's ban on certain conflicts of interest.
Royalty And IP-Backed Deals
Intellectual property can support a securitization when it produces steady, contractual cash flow. Music publishing and recorded music catalogs, pharmaceutical and patent royalties, franchise fees in whole-business deals, and software and content license revenue have all been securitized. These deals raise questions that ordinary receivables do not. The SPV needs clear title to the IP or the royalty stream, recorded with the USPTO or Copyright Office where that affects priority. Licenses must permit assignment and keep paying if the originator fails, and someone must keep enforcing and maintaining the rights. Valuation turns on how long the cash flows last, so diligence on chain of title, copyright termination rights, and pending validity challenges is central.
Repurchase And Trustee Litigation
Securitization disputes usually start with the representations and warranties the originator gave about the assets. When loans default, investors or the trustee claim the reps were false and demand repurchase, typically under a sole remedy provision. In ACE Securities v. DB Structured Products, New York's highest court held that the statute of limitations on those claims runs from the closing date, not from the refusal to repurchase. Sponsors must also disclose repurchase demands on Form ABS-15G under Rule 15Ga-1. We handle repurchase claims, disputes over waterfall payments and trustee conduct, and servicer termination fights, and we draft deal documents with those fights in mind, including clear materiality standards and notice procedures.
Getting A First Deal Right
First-time sponsors tend to underestimate the operating demands. The servicing platform must produce clean data for each reporting period, segregate collections, and keep the SPV's records apart from the parent's, because a lapse in practice can undercut the opinions the deal depends on. Eligibility criteria and reps should match what the origination system can actually verify. Many companies are better served starting with a warehouse facility that converts to a term securitization once the pool and its data history are large enough. We work through the asset data, servicing agreements, and corporate structure early, flag anything that would weaken a true sale or non-consolidation opinion, and draft the documents around how the business actually operates.
