True Sale Opinion

Summary

This template is a True Sale 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, alternate, and optional clauses. The legal opinion relating to the sale of assets is commonly referred to as a true sale opinion and often is issued in connection with the closing of an asset-back securities (ABS) transaction. The opinion typically addresses the question of whether, in the event that the transferor of a pool of assets (referred to as pool assets) were to become a debtor in a case under the Bankruptcy Code, a court would hold that the transfer by the transferor constituted a sale of the transferor's right, title, and interest in the pool assets and not a loan such that (i) the pool assets and all income from and proceeds of the pool assets would not be property of transferor's estate under Section 541 of the Bankruptcy Code, and (ii) the automatic stay arising under Section 362 of the Bankruptcy Code upon the commencement of a bankruptcy case involving the transferor would not be applicable to the ABS issuer’s pool assets. The true sale opinion delivered by bankruptcy counsel are typically reasoned opinions which weigh the different facts and circumstances of a particular transaction and apply case law to arrive at the conclusion. It is of critical importance that bankruptcy counsel review the proposed structure of the transaction at the earliest stages of the transaction so that the transaction may be structured in a manner that will permit bankruptcy counsel to deliver the required legal opinions. In particular, for purposes of the true sale opinion, bankruptcy counsel will require that the ABS issuer take on the economic risks and benefits of ownership of the assets, although generally the ABS issuer is permitted to have limited recourse to the seller for breaches of certain representations and warranties unrelated to the performance of the pool assets. For more information, see Legal Opinions in Securitizations and Bankruptcy Remoteness in Securitization. For information on other legal opinions and related templates, see Legal Opinions in Financing Transactions Resource Kit.