Fraudulent and Preferential Transfer Issues Concerning Structured Financings

I. Definition of Special Purpose Vehicle ("SPV"):

A. Typically, an SPV is an entity (often a limited liability corporation or business trust) that is formed as a subsidiary of the parent company (the "Seller") for the purpose of purchasing certain assets of the Seller (often accounts). The SPV finances the purchase price (through loans from institutional lenders or the issuance of commercial paper) and repays the loan through the cash flow from the purchased assets. The SPV's activities are usually limited to holding title to the transferred assets and collecting and distributing the proceeds of such assets.

SPVs are utilized most often in the securitization, or structured financing, of accounts receivable. The SPV should be a "bankruptcy remote" entity that would not be effected by a bankruptcy of the Seller. In addition, an SPV's by-laws often contain provisions restricting the SPV's ability to file a bankruptcy petition. Thus, an SPV is also referred to as a bankruptcy remote vehicle or "BRV."