Talking about hindsight. Read my post with the following in the back of your mind:
Washington Mutual wrote to
Ms. Suzanne Q. Bielstein Director of Major Projects and Technical Activities Financial Accounting Standards Board- FASB- in October 10, 2005 .
There were questions of LEGAL INSULATION, the consequences of INSOLVENCY,
transfer of financial values, Special Purpose Entity (SPV SPE ...) etc.
Very interesting, very informative.
unfortunately I can not serve with a link ... and only with an excerpt that should be read:
"For example, paragraph 9 (a) (as amended) states:
The transferred financial assets were isolated from the transferor - presumably outside the Reach of the transferor and its creditors,
even in the event of bankruptcy or other forced administration.
Transferred financial assets are only isolated at the bank or other bankruptcy trustee if the available evidence provides reasonable assurance that the transferred financial assets are beyond the reach of the powers of a bankruptcy trustee or other bankruptcy trustee for the transferor or a consolidated subsidiary of the transferor
that is a special purpose vehicle or another entity that is intended to prevent the possibility of bankruptcy or other bankruptcy management (bankn, ptcy-remote entity).
The paragraph above appears to indicate the form of evidence required to demonstrate that the legal isolation depends on the type of entity examined.
For example, Washington Mutual Bank ("WMB"), a subsidiary of the company, is a federal savings bank association overseen by the Office of Thrift Supervision and whose deposits are insured within the applicable limits by the Federal Deposit Insurance Corporation ("FDIC").
In the event of bankruptcy, the FDIC would be appointed as a bankruptcy trustee or conservator and its administration would be managed by the FDIC in accordance with the applicable provisions of the Federal Deposit Protection Act ("FDIA") and the rules and interpretations of the FDIC.
In such a situation, the most appropriate form of evidence of legal isolation in relation to qualified securitization transactions would be within the meaning of the applicable FDIC rule
an FDIC management report covering the transferred assets as a federal savings bank association is not subject to US bankruptcy law in the event of bankruptcy.
In this regard, we would like to point out that the typical FDIC statement submitted to WMB states that if the FDIC were appointed as a conservator or bankruptcy administrator for WMB, the FDIC would transfer the assets transferred from WMB to the recipient transferred with the specified securitization transaction in accordance with the FDIA, would not reclaim, reclaim or re-label as property of WMB.
The applicable FDIC rule only applies to securitization transactions and does not apply to non-securitization transactions (e.g. entire loan sales).
Paragraphs 27A and 27B (a), both of which have been included in the ED, further elaborate on the legal isolation requirements set out in Paragraph 9 (a). We believe paragraphs 27A and 27B (a), as amended, raise additional questions regarding the requirements required to achieve legal isolation. Paragraph 27 A states:
The transfer of a financial asset, group of financial assets, or investment in a single financial asset (which is incorrectly referred to in this statement as transferred financial assets) is only considered to be isolated if a legal analysis provides the following conclusions under the laws of the applicable law would:
a. The transfer is legally a sale. (Think reverse triangular merger!)
b. In the event of bankruptcy, forced administration or other bankruptcy of the transferor or a consolidated subsidiary of the transferor that is not a bankruptcy-derived company,
the transferred assets would not be considered part of the transferor's or its consolidated subsidiary's estate.
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