Bankruptcy Remote Vehicle (Financial Restructuring & Bankruptcy Glossary)

Summary

Entities widely used in a securitization and other types of transactions in an attempt to isolate an asset – often loan collateral – from the risks and disruption of a bankruptcy proceeding. The main advantage of a bankruptcy remote vehicle is that it permits borrowers to separate the smaller, lucrative portions of their business from the riskier parts of the larger business. Borrowers form a bankruptcy remote entity and then isolate and transfer their organization’s financial assets to the entity in an effort to: (i) insulate their lender or investors from the risk of the borrower’s subsequent insolvency or bankruptcy filing; and (ii) reduce the risk that the financing transaction will be challenged or nullified by the trustee or the court in a subsequent bankruptcy case.