Non-Consolidation Opinion

Summary

This template is a Non-Consolidation Opinion. It is intended as a general drafting aid and will require modification according to the particular circumstances and the intentions of the parties. This template includes practical guidance, drafting notes, and alternate clauses. Non-consolidation opinions are commonly issued as part of a commercial real estate loan transaction, often when the applicable loan is going to be securitized through the commercial mortgage-backed securities (referred to as CMBS) market. The borrower in a structured credit facility may be established as a subsidiary of an operating company to hold certain assets – e.g., real estate - that will serve as collateral. The subsidiary will be established as a special purpose entity (SPE) also referred to as a bankruptcy-remote entity in an attempt to isolate the loan collateral from the risks and disruption of a bankruptcy proceeding. In real estate financing transactions, lenders with non-recourse mortgage loans on commercial real estate prefer to extend credit to a newly-formed SPE formed for the express purpose of holding real property and having no liabilities other than in the normal course of business as the owner of that property. The loan agreement typically contains separateness provisions that require that the SPE's assets, liabilities, corporate structure and record-keeping are distinct from a parent company. Violation of separateness provisions typically trigger recourse under a non-recourse carve-out guaranty. Lenders will often require the delivery of an opinion of counsel giving them comfort that if the borrower and certain related entities or individuals were to become debtors in a bankruptcy case, the borrower's assets and liabilities would not be substantively consolidated or "pooled" with those of the related entities or individuals. This non-consolidation opinion template includes sample facts that could be used (as modified) for a real estate financing transaction. This template can also be used for other securitization transactions with some revisions. For more information, see Legal Opinions in an Acquisition Loan, Legal Opinions in Financing Transactions Resource Kit, Representing the Borrower in a CMBS Loan, Bankruptcy Remoteness in Securitization, and Substantive Consolidation. For information on other legal opinions and related templates, see Legal Opinions in Financing Transactions Resource Kit.