The Elusive True Sale in Securitization

Abstract

True sale is the foundation to all securitization, without which the entire securitized structure will crumble. Being able to sell receivables to a special purpose vehicle (“SPV”) and knowing for sure that the SPV is bankruptcy remote allows the originator of the receivables to borrow at significantly lower rates than it otherwise could and to offload assets not within the core competency of the business. But how exactly does one ensure that there is a true sale? The seemingly simple concept of buying and selling holds many more uncertainties than one may think. Part I of this paper gives a brief overview of the concept of true sale and the law that governs true sales in the securitization context while Part II delves into greater detail of the legal and economic aspects of a true sale. Part III analyzes the implications of the current legal regime and posits on potential improvements.