CDOs, MBSs, CMBS, CMOs

Bankruptcy

Posted on Tuesday, April 14, 2009

CMBS borrowers are almost always bankruptcy remote. They are entities set up for the sole purpose of owning and operating a certian piece of real estate. They have restrictions in their organizational documents precluding them from engageing in any other kind of business or incurring any other debtand keeping them separate from any affiliates. They may also have separate directors. The purose is to minimize the chances that the borrower will file bankruptcy. And if he does, the mortgage lender will probably be the only significant creditor. This means the lender has more leverage in workouts and bankruptcy negotiations. Borrower counsels will normally have to provide a legal opinion on the borrowers bankruptcy remoteness.


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