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Bankruptcy Litigation

When ‘Bankruptcy Remote’ Meets Public Policy

Serving Two Masters

This article examines two recent cases, and suggests practices that lenders to BREs can use to reduce the risk of a debtor bankruptcy without compromising the policies underlying bankruptcy and corporate laws.

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Structured financing transactions make extensive use of entities formed for the specific purpose of reducing the likelihood that assets will be involved in a potential bankruptcy proceeding. Known as “bankruptcy-remote entities,” or “BREs,” these entities are subject to structures and covenants in financing documents and their own formation documents, which are designed to reduce the likelihood that the BRE will file for bankruptcy protection.

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