Securitization of oil, gas, and other natural resource assets: Emerging financing techniques

Business Lawyer

Volumn 52, Issue 3, 1997, Pages 885-935

  Harrell, Charles E ^a   Rice III, James L ^a   Shearer, W Robert ^a  

^a Weil Gotshal and Manges LLP   (United States)

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EID: 21744454802     PISSN: 00076899     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (291)

1. See DANIEL YERGIN, THE PRIZE: THE EPIC QUEST FOR OIL, MONEY, AND POWER 29-34, 720-44 (1991).
2. Although somewhat novel, the $6 billion class-action suit filed by an Indonesian tribal leader against Freeport-McMoRan, which mines copper, gold, and silver in the mountains of Irian Jaya, in mid-1996 is indicative of litigation risks that must now be evaluated by international companies which engage in the development and exploitation of natural resources. In addition to alleging environmental destruction of resources, the suit claims that "eco-terrorism, " "cultural genocide, " and corporate policies have led to human rights violations against Amungme tribal people. Stewart Yerton, Irianese Tribesman Sues Freeport, Times-Picayune, Apr. 30, 1996, at CI.
3. Because of the lack of authority, judicial or otherwise, addressing the securitization of oil, gas, and natural resource assets, the authorities discussed or cited herein primarily concern financings and transfers of such assets in traditional asset transfer or financing transactions.
4. For a general discussion of securitization, see 1 SECURITIZATION OF FINANCIAL ASSETS §§1.01, 1.02 (Jason H.P. Kravitt, ed., 2d ed. 1996).
5. Lynn M. LoPucki, The Death of Liability, 106 YALE L.J. 1, 25 (1996).
6. David S. Neill & John P. Danforth, Bank Merger Impact on Small Business Services is Changing, BANKING POL'Y REP., Apr. 15, 1996, at 1.
7. See Reade H. Ryan, Jr., Trade Receivables Purchases, SA80 ALI-ABA 507, at *511 (1996) available in WESTLAW, ALI-ABA Database. This requirement explains why the asset-backed market began with bank and finance company assets like mortgages, credit cards, and automobile loans, which have similar terms and credit profiles. Id.
8. The securities may be debt securities or equity securities. If the securities are debt securities, their repayment is secured by the SPV's interest in the assets.
9. For example, the sponsor may have to provide credit and/or liquidity enhancements as a means of lowering the risks to investors in the resulting securities.
10. Other benefits that may inure to the originator as a result of the segregation process include removing the assets and related indebtedness from the originator's balance sheet, and expanding the range of investors willing to invest in the indebtedness of the originator. See Securitization of Financial Assets, supra note 4, § 1.01.
11. See id.
12. Originators and purchasers should also bear in mind that their competitors may obtain access to information as a result of disclosures which may be required pursuant to the transaction implementation documentation, such as securities disclosures, disclosures made in connection with concession and permit applications and filings, and disclosures made in connection with private placement memoranda.
13. See Thomas P. Hourican, Stream of New Asset Types Continues to Flow, STANDARD & POOR'S STRUCTURED FIN., Aug. 1993, at 7.
14. Several excellent sources detail the history of securitizations. See Tamar Frankel, SECURITIZATION: STRUCTURED FINANCING, FINANCIAL ASSET POOLS, AND ASSET-BACKED SECURITIES (1991).
15. Steven L. Schwarcz, Structured Finance: A Guide to the Principles of Asset Securitization (2d ed. 1993).
16. See generally Stephen I. Glover, Structured Finance Goes Chapter 11: Asset Securitization by Reorganizing Companies, 47 BUS. LAW. 611 (1992).
17. See Lynn A. Soukup, When Assets Become Securities, Bus. L. TODAY, Nov./Dec. 1996, at 20.
18. See Irene Dias Da Silva & Edmundo Nejm Junior, Brazil: Asset Securitization, 26 U. MIAMI INTER-AM. L. REV. 611, 612 (1995).
19. See id.
20. Several financings involving operating assets have been completed successfully, both public and private. An example of the latter is the 1993 Pacific Lumber Company (Pacific Lumber) financing. In that financing, a special purpose, wholly owned subsidiary of Pacific Lumber issued S385 million in aggregate principal amount of its 7.95% Timber Collateralized Notes due in 2015. The debt was secured, in part, by certain timber properties transferred to a subsidiary by Pacific Lumber arid paid for, in part, by assumption of Pacific Lumber's debt. The special purpose subsidiary derived revenue from the sale of logs to Pacific Lumber pursuant to a master purchase agreement, and the subsidiary and Pacific Lumber entered into a service agreement whereby Pacific Lumber performed certain services in connection with the harvesting and sale of the lumber. See Committee on Bankruptcy and Corporate Reorganization of the Association of the Bar of the City of New York, Structured Financing Techniques, 50 Bus. Law. 527, 539 (1995).
21. For a detailed discussion of three such transactions, see infra text accompanying notes 55-72. Securitization techniques also have been applied in international trade of, and project financing of, oil and gas and other natural resource assets. Use of securitization facilities as a means of project financing has been very limited outside the natural resource area in view of the fact that few other types of projects can provide hard currency income streams. As is true with securitizations involving export credits, these structures are particularly important for companies in countries that do not maintain acceptable investment grade ratings. Included among the risks that must be considered and evaluated in this type of transaction is "performance risk": that is, the risk that the underlying project will fail to continue producing the securitized export receivables. Frequently, this is a risk that must be addressed through credit and liquidity enhancements. Nevertheless, because securitizations of this type involve purchases of future receivables, all participants must bear some degree of performance risk. As a result, a thorough evaluation of the foreign exporter is critical and historical information concerning the exporter's production history must be obtained. In addition, participants in these transactions must evaluate and understand the political and economic significance of the underlying commodity. See Pemex Receivables U.S. Master Trust, Standard & Poor's Structured Fin., Aug. 1993, at 88-89 (discussing the role of oil revenues in the Mexican economy and the effect of the foregoing on the rating of securities issued in connection with the Pemex securitization.).
22. For more extensive discussion of certain aspects of these transactions, see infra text accompanying notes 55-72.
23. Pemex Receivables U.S. Master Trust, supra note 16, at 88.
24. Richard S. Brennan, Current Trends in Oil and Gas Financing, 25 ROCKY MTN. MIN. L. INST. 16-1, 16-2 (1979).
25. Reserves so classified, defined in Reguládon S-X as oil and gas reserves "that can be expected to be recovered through existing wells with existing equipment and operating methods, " present the least risk. Regulation S-X, 17 C.F.R. § 210.4-10(a)(3) (1996).
26. Proved reserves are defined in Regulation S-X as "the estimated quantities of crude oil, natural gas, and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions." Id. § 210.4-10(a)(2).
27. These are "reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion." Id. § 210.4-10(a)(4). Historically, this class of reserves has been given little or no borrowing base value. As liquidity in the financial markets has increased during the early and mid-1990s, however, lenders have allowed increasing amounts of credit for proved undeveloped reserves.
28. Jay Facciolo, Book Review, 11 B.U. Int'l L.J. 165, 168 (1993) (reviewing CLIFFORD CHANCE, PROJECT FINANCE (1991)).
29. See Brennan, supra note 19, at 16-8.
30. Oil and gas project financings also involve certain other forms of financial assets, including throughput agreements, royalty participation structures, and credit derivatives. See infra note 30 for a partial list of other income producing assets that may underlie project financing structures.
31. See infra text accompanying notes 62-68.
32. See PETER K. NEVITT & FRANK FABOZZI, PROJECT FINANCING 298 (6th ed. 1995). Banks generally are not permitted to own real property and thus cannot own mineral interests. They, therefore, cannot invest directly in production payments. Id.
33. See id. Purchasers of production payments generally bargain for payments substantially higher than the purchase price and the greater the risk, the greater the disparity between purchase price and production payments. 2 HOWARD R. WILLIAMS & CHARLES J. MEYERS, OIL AND GAS LAW 370 n.23 (Patrick H. Martin & Bruce M. Kramer, eds. 1996). The Enron securitization, discussed infra text accompanying notes 62-68, involved production payments. Section 208 of the Bankruptcy Reform Act of 1994 exempts certain production payments from a debtor's estate. Pub. L. No. 103-394, §208, 108 Stat. 4106, 4124 (codified at 11 U.S.C. §§ 101, 541 (1994)).
34. see infra note 78.
35. See generally ALAN R. BROMBERG & LARRY E. RIBSTEIN, BROMBERG AND RIBSTEIN ON PARTNERSHIP (1996).
36. KENNETH M. BURKE & FRANCIS L. DURAND, OIL AND GAS LIMITED PARTNERSHIPS: ACCOUNTING, REPORTING, AND TAXATION (1984).
37. WILLIAM S. MCKEE et al., FEDERAL TAXATION OF PARTNERSHIPS AND PARTNERS (2d ed. 1990).
38. ARTHUR B. WILLIS et al., PARTNERSHIP TAXATION (5th ed. 1994 & Supp. 1996).
39. Other income producing assets include the following: (i) Carried interest. A carried interest is a fractional interest in an oil and gas lease or well the holder of which has no personal obligation for drilling and other costs. These costs are paid by the owner or owners of the remaining interest. See George S. Wolbert, Jr. & A. Kelly Williams, Risk Analysis: The Evoking IDC Offshore Formula, 48 La. L. Rev. 595, 616n.128 (1988). The party bearing the drilling costs is referred to as the carrying party and the party with limited cost obligations as the carried party. The carried party owns a working interest but has limited obligations as to drilling and development costs. There are several common variations as to what extent the carried party is carried: a party may be carried "to casing point, " meaning the carried party bears no drilling costs but pays completion costs pro-rata; or a party may be carried "through casing point, " meaning the carried party bears no drilling or completion costs. The carried party, depending on the agreement with the carrying party, may begin sharing in the proceeds from production immediately or may have an arrangement where the carrying party is reimbursed out of the carried party's share of production, usually after 100% of costs are recovered
40. See supra note 15.
41. See Jeanne Burke, Jeffries Securitizes Loans to Oil and Gas Producers, PRIVATE PLACEMENT REP., Nov. 29, 1993, at 4. Other oil and gas assets that can be securitized include loans made to a single energy or other natural resource company, and loans to several energy or other natural resource companies. An example of the latter is the 1993 MG Trade Finance Corporation (MG Trade) transaction involving the private placement of approximately S70 million in debt securities. MG Trade, a U.S. finance subsidiary of Germany's Metallgesellschaft A.G., lends direcdy to independent oil and gas companies with revenues between S25 million and SI50 million. The securitization debt finances oil and gas production and its repayment is secured by the underlying reserves. The finance entity has extensive experience in the oil and gas industry, and could therefore manage the collateral in the event the producers defaulted on their loans. See id. In addition, several countries, particularly those in South America, have either already securitized certain of their state-owned oil and gas assets or are in the process of doing so.
42. Other types of oil and gas interests that can be securitized include mineral interests, land owner's royalties, overriding royalties, and net profit interests. The mineral interest in oil and gas is the fee ownership of oil and gas situated under a parcel of property, the most significant aspect of which is the exclusive right to produce that oil and gas. .See John S. Lowe, OIL AND GAS LAW IN A NUTSHELL 38-41 (2d ed. 1988). A mineral interest owner who grants an oil and gas lease generally retains a landowner royalty interest, entitling it to a cost-free share of gross production or of the proceeds from the sale of production. See id. at 44. The landowner typically will also receive a bonus and the right to collect delay rentals, which usually are paid annually on an acreage basis to defer drilling one more year during the primary term of the lease. An overriding royalty is a cost-free right to a share of gross production or to the proceeds from the sale of production that is carved out of a lessee's interest under an oil and gas lease. See id. at 44-45. An overriding royalty is substantially similar to a production payment except that the former normally has the same duration as the working interest from which it was created, while the latter ends when the specified sum or quantity of production is realized. A lessee may assign all or part of its interest in a lease pursuant to a farm-out agreement, which is an agreement among operators whereby one operator not interested in drilling at the time assigns to another all or some portion of the lease, which transfer is complete only upon the assignee's drilling on the assigned acreage. Sometimes the assignee will retain an overriding royalty (reversionary or "back-in" working interest) or production payment in the exchange.
43. See 8 WILLIAMS & MEYERS, supra note 28, at 389. A lessee also may grant an overriding royalty interest as either consideration or security for the financing of its operations. A securitization involving royalties on oil production was consummated in 1994 in the Republique du Congo. The Republique du Congo had previously granted Agip, an Italian oil company, drilling rights whereby Agip paid royalties monthly on the oil it produced. The securitization involved the issuance of bonds due in 2004, the repayment thereof secured by the royalties owed by Agip to the government. Payments on the receivables (which represented the Congo government's right to payment with respect to production) were made to a separate trust, created by the investment boutique Qwinzy Capital. The trust was maintained at a "AAA" rated bank. The debt itself was not rated as it was considered a sovereign risk. See Alexander Smith, Congo Bond Deal Undergoes Complete Facelift, REUTERS FINANCIAL SERVICE, Feb. 3, 1994, available in LEXIS, News Library, Reufin File. A net profit interest is a share of gross production from a property measured by the net profits realized from operating the property. See LOWE, supra, at 47. The holder of a net profits interest receives an agreed upon share of the profits from production after the operator satisfies the costs of exploration and development from the proceeds of production. These interests generally arise by grant when, for example, one co-tenant agrees to assume the entire cost of operations on jointly owned property and grants the other co-tenant a net profits interest in the property. Or, a lessee may transfer its interest in a leasehold to an entity that agrees to assume the entire cost of operations in exchange for a net profits interest.
44. It should be borne in mind that purchasers of oil and gas production must also make payments to a number of parties, including land owners, royalty holders, and other interest holders.
45. See LOWE, supra note 33, at 47.
46. See WILLIAMS & MEYERS, supra note 28, at 196.
47. EBITDA is an abbreviation for earnings before interest, taxes, depreciation, and amortization.
48. CPLTD is an abbreviation for current portion of long term debt expenditures.
49. This is an abbreviated reference to the requirements for calculating reserve values set forth by the U.S. Securities and Exchange Commission.
50. The risks discussed do not constitute a comprehensive list of risks associated with these securitizations. This Article does not extensively discuss, for example, risks associated with regulatory and political environments, licenses and permits, construction installation and completion issues, appropriation, currency and foreign exchange risks, insurance concerns, weather and other force majeure risks, environmental issues, and infrastructure availability.
51. Even when the securities will not be rated, a successful securitization will require the SPV's securities to be marketable at a rate that allows the originator to achieve its goals. To accomplish this, risks must be minimized to acceptable levels.
52. See supra note 20.
53. See supra note 21.
54. See supra note 22.
55. See generally John A. Rosenkranz, Risk Management Principles in Natural Gas Marketing, PUB. UTIL. FORT., Oct. 13, 1988, at 27.
56. John L. Wilson, To Hedge or Not to Hedge, PUB. UTIL. FORT., June 21, 1990, at 21.
57. See infra notes 62-67 and accompanying text (discussing "true sale"); see also infra notes 224-32 and accompanying text (discussing substantive consolidation).
58. Currency risk is present not only with regard to revenues but also costs. Many foreign project financings require large capital expenditures and labor costs in local currencies.
59. Balancing agreements also can impair the timing of cash flows. Balancing agreements are agreements by which entities that have an interest in production from a well, lease, or other property adjust their take therefrom to ensure that each one receives its proportionate share of production or the value of proceeds of production. With periodic cash balancing, the underproduced party receives cash and the production is immediately brought into balance. In the United States, balancing problems generally arise in connection with the production of gas. Ina number of major oil producing countries, however, problems with balancing oil production have arisen in connection with shipping and marketing arrangements of parties with an interest in production under a concession or similar agreement.
60. The sovereign rating is not an absolute ceiling, however, as demonstrated by the Pemex securitization in which the securities issued were rated "A, " although Mexico's rating is "BB +." See infra notes 55-61 and accompanying text.
61. OVERSEAS PRIVATE INV. CORP., PROGRAM HANDBOOK 3 (1994).
62. Id. at 21-23. OPIC also has special insurance programs designed to meet the needs of certain types of international investments. Id. at 24. One such program is designed specifically "to encourage petroleum exploration, development and production in developing countries." Id. at 25-26. The program offers standard political risk insurance, and enhanced expropriation and interference with operations coverages. Id. at 26. The Export-Import Bank of the United States, whose stated mission it is "to help the private sector create and maintain American jobs by assisting the financing of exports, " achieves that mission in part by providing export credit insurance to U.S. exporters. EXPORT-IMPORT BANK OF THE U.S., EXPORT CREDIT INSURANCE 1 (1992). Credit risk insurance is designed to protect exporters against foreign buyers' failure to satisfy their credit obligations for various reasons. Id. at 1-2. Insured export receivables may be more readily securitized than export receivables which have not been protected.
63. See Yergin, supra note 1, at 670.
64. see also Craig Forman & Steve Mufson, Britain to End North Sea Oil Price Supports, WALL ST. J., Mar. 14, 1985, at 3.
65. See Richard Whittle, Colombia Put on Blacklist; Mexico Not Punished in U.S. Anti-drug Action, DALLAS MORNING NEWS, Mar. 2, 1996, at 1A.
66. The extensive and detailed covenant structures found in securitizations "create" an acceptable credit apart from the sponsor.
67. See Pemex Receivables U.S. Master Trust, supra note 16, at 88.
68. Id.
69. Id. at 89-90.
70. Id. at 90.
71. Id. at 88.
72. Id.
73. Id. at 91.
74. True sale treatment will improve the originator's capital-to-assets ratio and return on assets. The answer to whether an originator is entitled to such treatment may also result in either an acceleration or delay of gains and losses on the assets that are transferred to the SPV.
75. Financial Accounting Standards Board, Emerging Issues Task Force Minutes/Issue Summaries, Issue No. 96-20, Impact of FASB Statement No. 125, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of liabilities, on Consolidation of Special-Purpose Entities (Aug. 14, 1996), available in LEXIS, NAARS Library, Lit File.
76. ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES, Statement of Financial Accounting Standards No. 125 (Financial Accounting Standards Bd. 1996).
77. Id. para. 19.
78. Id. para. 138.
79. Id. para. 11.b.
80. See infra notes 224-32 and accompanying text.
81. See NylMex Places Mexican 144A, Asset Sales Rep., June 3, 1996, at 7.
82. Id.
83. 17 C.F.R. § 230.144A (1996).
84. 15 U.S.C. §§ 77a-77aa (1994 & West Supp. 1997).
85. See U.C.C. § 9-102(a) (1995). The comments to § 9-102 explain its application to se-curity interests in, and sales of, accounts as follows: "[c]ommercial financing on the basis of accounts and chattel paper is often so conducted that the distinction between a security transfer and a sale is blurred, and a sale of such property is therefore covered ... whether intended for security or not." See id. § 9-102 cmt. 2. In fact, both the U.C.C. and case law define "security interest" to include "any interest of a buyer of accounts." Id. § 1-201(37).
86. see Major's Furniture Mart, Inc. v. Casde Credit Corp., 602 F.2d 538, 542 (3d Cir. 1979). Though the U.C.C. does not provide guidance for distinguishing between a sale and transfer of accounts, neither does it purport to eliminate the distinction between the two. Comment 4 to § 9-502 states that subsection 2 of § 9-502 "recognizes that there may be a true sale of accounts or chattel paper although recourse exists." U.C.C. § 9-502 cmt. 4. This determination is left for the courts, which "must examine criteria and sources of law other than those provided by the U.C.C. to determine whether a transfer is a true sale or merely for security." Robert D. Aicher & William J. Fellerholf, Characterization of a Transfer of Receivables As a Sale or a Secured Loan Upon Bankruptcy of the Transfer, 65 A.M. BANKR. L.J. 181, 186 (1991).
87. Section 208 of the Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 208, 108 Stat. 4106, 4124, added § 541(b)(4)(B) to the Bankruptcy Code, which expressly excludes from the debtor's bankruptcy estate oil and gas production payments. 11 U.S.C. § 541(b)(4)(B) (1994). Section 541(b) of the Bankruptcy Code provides that: (b) Property of the [debtor's] estate does not include-. . . .(4) any interest of the debtor in liquid or gaseous hydrocarbons to the extent that-. . . .(B)(i) the debtor has transferred such interest pursuant to a written conveyance of a production payment to an entity that does not participate in the operation of the property from which such production payment is transferred. .. . Id. § 541(b)(4)(B)(i). So, to the extent that assets transferred to an SPV constitute production payments coming within § 541(b)(4)(B) of the Bankruptcy Code, those assets will not be includible in the debtor's estate regardless of the nature of their transfer. Section 541(b)(1)(B) is effective in bankruptcy cases commenced on and after October 22, 1995. Pub. L. No. 103- 394, § 702, 108 Stat. 4106, 4124 (1994).
88. Charles E. Harrell & Mark D. Folk, Financing American Health Security: The Securitization of Healthcare Receivables, 50 BUS. LAW. 47, 77 (1994).
89. Run tickets, which are a reporting mechanism used to reflect the volumes of oil or gas that have been produced during specified time intervals at specified prices, are used to account for most oil and gas production.
90. This structure might be used where there is uncertainty concerning transportation and delivery costs or where there are concerns regarding the creditworthiness of the third- party buyers.
91. To the extent the discount or processing fee represents a financing charge, the transaction takes on the appearance of a financing transaction. To the extent the parties to such a transaction allocate too much collection risk to the assignor, the transaction is consistent with a loan, not a true sale. In addition, if the transaction should be viewed as a loan, in jurisdictions such as Texas, the parties must also evaluate whether or not the transaction may be deemed to be usurious. See TEX. REV. CIV. STAT. ANN. art. 5069-1.01 to .04 (West 1987 & Supp. 1997).
92. 995 F.2d 948 (10th Cir. 1993).
93. Id. at 952 (first alteration in original) (quoting Appellant's App. at 83-86).
94. Id.
95. Id. at 954.
96. Id. at 955.
97. Id. at 954.
98. Id.
99. Id. (alteration in original) (quoting OKLA. STAT. ANN. tit. 12A, § 9-106 (West Supp. 1993)).
100. Id. at 955.
101. Id.
102. Id. (alteration in original) (quoting OKLA STAT. ANN. tit 12A, § 102 cmt. 2 (West Supp. 1993)).
103. Id.
104. Id. In his dissent, Judge Seth argued that Rimmer's interest was separate and distinct from Poll's and was sold to him outright under the initial agreement with Amcole. Id. at 958 (Seth, J., dissenting). In Judge Seth's view, the intent of the parties (to effect an outright sale) must be given effect, and the parties' course of dealing "modifies the U.C.C. terms, and determines the real nature of the interests." Id. at 960. Judge Seth observed that, as there was no hint of commercial financing, to apply the "account" definition would reverse a completed sale and revest Rimmer's interest in Poll. Id. He concluded that the most Article 9 could do is "to require this to be a security transaction, unless a contrary intention and purpose of the parties can be shown." Id. The U.C.C., Judge Seth argued, cannot, by fiat, change the consequences and legal nature of a transaction contrary to the intent of the parties. Id.
105. 193 B.R. 513 (B.A.P. 9th Cir. 1996).
106. Id. at 516.
107. Id.
108. The Permanent Editorial Board for the U.C.C. eventually issued a draft commentary in early 1994 that disapproved of the Tenth Circuit's reasoning. See PEB Commentary on the Uniform Commercial Code, Commentary No. 14 (Section 9-102(1)(b)) Final Draft (June 10, 1994).
109. 861 F.2d 241 (9th Cir. 1988).
110. Id. at 245.
111. Id.
112. 386 So. 2d 1153 (Ala. Civ. App. 1980).
113. Id. at 1158.
114. Id.
115. In re Carolina Utilities Supply Co., 118 B.R. 412 (Bankr. D.S.C. 1990), is another interesting case in which the court set forth a straightforward analysis identifying factors relevant to determining whether a true sale has occurred. The court focused on the fact that the purported purchaser had full recourse against the seller if the receivables proved uncollectible and did not assume the risks usually associated with ownership. Id. at 416.
116. see also In re Evergreen Valley Resort, Inc., 23 B.R. 659 (Bankr. D. Me. 1982). For further support for the general principle that the parties' allocation of the risks normally associated with ownership is one of the most critical elements in determining whether a sale has taken place, see Bernard v. Fireside Commercial life Insurance Co., 633 So. 2d 177, 188 (La. Ct. App. 1993) (finding that, when a "purchaser" of a participation interest in a loan had an unconditional right to demand that the "seller" repurchase the interest on 30-days notice, no true sale of the interest had occurred).
117. accord Ryan v. Zinker (In re Sprint Mortgage Bankers Corp.), 164 B.R. 224, 228 (Bankr. E.D.N.Y. 1994) (identifying factors courts have applied to determine whether the purchase of a participation interest is a true purchase or merely the making of a loan, and focusing primarily on whether the seller has transferred an appropriate pro-rata share of the risk to the buyer), aff'd, 177 B.R. 4 (E.D.N.Y. 1995).
118. see also European Am. Bank v. Sackman Mortgage Corp. (In re Sackman Mortgage Corp.), 158 B.R. 926, 932-35 (Bankr. S.D.N.Y. 1993) (containing a similar analysis).
119. U.C.C. §9-102(1)(b) (1995).
120. Another option that participants in transactions implicating the laws of either the Ninth or the Tenth Circuits should consider is requiring the principal office of the entities transferring assets to the SPV to be in a true sale "friendly" jurisdiction such as Delaware or New York.
121. This is particularly true when the proposed transaction will involve producing assets in the Tenth Circuit.
122. To be treated as an "account, " a right to receive payment for goods must not be "evidenced by an instrument or chattel paper." U.C.C. § 9-106.
123. For purposes of Article 9, a "document" means a document of tide including any "bill of lading, dock warrant, dock receipt, warehouse receipt or order for the delivery of goods, and also any other document which in the regular course of business or financing is treated as adequately evidencing that the person in possession of it is entitled to receive, hold and dispose of the document and the goods it covers." Id. §§ 1-201(15), 9-105.
124. As used in Article 9, "chattel paper" means "a writing or writings which evidence both a monetary obligation and a security interest in . . . specific goods." Id. § 9-105(b).
125. Article 9 defines an "instrument" as "a negotiable instrument. .. oranyotherwriting which evidences a right to the payment of money and is not itself a security agreement or lease and is of a type which is in ordinary course of business transferred by delivery with any necessary indorsement or assignment." Id. § 105(i).
126. Rimmer v. Octagon Gas Sys., Inc., 510 U.S. 993 (1993).
127. See infra text accompanying notes 161-98.
128. 421 N.Y.S.2d 325 (App. Div. 1979).
129. Id. at 327, U.C.C. § 9-102(1)(b).
130. Service Inst., 421 N.Y.S.2d at 327.
131. Id.
132. see also Peter V Pantaleo et al., Rethinking the Role of Recourse in the Sale of Financial Assets, 52 BUS. LAW. 159, 160 (1996).
133. See Service Inst., 421 N.Y.S.2d at 327.
134. Whether in the context of oil and gas interests (particularly production payments), or other receivables such as healthcare receivables, see Harrell & Folk, supra note 75, assignors frequently retain some authority to collect accounts.
135. See Service Inst., 421 N.Y.S.2d at 327.
136. Id.
137. Id.
138. Id. (citing Krauss v. Clarke, 173, N.Y.S. 101 (App. Div. 1918)).
139. Krauss, 173 N.Y.S. at 102.
140. 602 F.2d 538 (3d Cir. 1979).
141. Id. at 545.
142. Id.
143. See SECURITIZATION OF FINANCIAL ASSETS, supra note 4, § 5.03.
144. Recourse of types (iii) and (iv) generally have not attracted judicial scrutiny. Id.
145. See Majors, 602 F.2d at 545.
146. U.C.C. § 9-502 cmt. 2 (1995).
147. As previously noted, in jurisdictions such as Texas, consideration must also be given to applicable usury laws, rules, and regulations.
148. Comments regarding the sale of accounts under English law were provided by partners in WGM's London office.
149. See Esteban A. Mancuso, Securitization to Increase Financing Alternatives, LATIN L. & BUS. REP., June 30, 1995, available in LEXIS, NEWS Library-, IACWLD file.
150. Id.
151. Id.
152. Id.
153. See id.
154. See Argentina Finance: New Measures to Develop Capital Markets, EIU VIEWSWIRE, July 27, 1995, available in LEXIS, NEWS Library, EIUVW file.
155. Comments regarding Mexican law are based on advice previously rendered by Mexican counsel.
156. Substantive consolidation is the judicial doctrine whereby creditors of an insolvent entity reach the assets of a related solvent entity by arguing the two should be treated as a single entity. See infra notes 224-32 and accompanying text.
157. see also Bruce Energy Ctr., Ltd. v. ORFA Corp. (In re ORFA Corp.), 129 B.R. 404, 414 (Bankr. E.D. Pa. 1991).
158. In re Mortgage Inv. Co., 111 B.R. 604, 610 (Bankr. W.D. Tex. 1990).
159. Harrell & Folk, supra note 75, at 79 n.137. Substantive consolidation is of particular concern when the SPV is controlled or owned by the originator. Avoiding substantive consolidation requires strict observation by related entities of all appropriate third-party formalities with the originator. See Schwarcz, supra note 141, at 136. The risk of substantive consolidation increases when sellers control the SPV, which often is the case because sellers of receivables are loathe to part with control over ongoing relationships with their customers, both in servicing the receivables and in retaining the ability to modify terms and grant extensions. See Aicher & Fellerhoff, supra note 73, at 183.
160. Except for fraudulent conveyance challenges, valid perfection of a security interest in the receivables protects investors from the dangers of seller bankruptcy essentially to the same degree as a true sale, the only consequence of which is a delay in converting the products to cash. Id. The danger of substantive consolidation, for example, is generally staved off through perfection. See FDIC v. Hogan (In re Gulfco Inv. Corp.), 593 F.2d 921, 928 (10th Cir. 1979).
161. Continental Yending Mach. Corp. v. Wharton (In re Continental Vending Mach. Corp.), 517 F.2d 997, 1001 (2d Cir. 1975).
162. See supra note 71 and accompanying text.
163. The annotations to Article 9 as adopted in New York distinguish accounts from contract rights on the basis of whether the condition precedent of performance has been satisfied. N.Y. U.C.C. LAW § 9-106, New York Annotations (McKinney 1990).
164. "The 1972 amendments to Article 9 eliminated the term 'contract rights' and folded the concept into 'accounts.' " Thomas E. Plank, Sacred Cows and Workhorses: The Sale of Accounts and Chattel Paper Under the U.C.C. and the Effects of Elating a Fundamental Drafting Principle, 26 CONN. L. REV. 397, 406 n.37 (1994).
165. N.Y. U.C.C. Law § 9-106, New York Annotations.
166. see also TEX. Bus. & Com. Code Ann. § 9.106, Official Reasons for 1972 Change (West 1991).
167. U.C.C. § 9-106 (1995).
168. N.Y. U.C.C. Law § 9-106.
169. See Tex. Bus. & Com. Code Ann. §9.106, Official Reasons for 1972 Change. "Contract rights" to payment for something other than goods sold or leased or services rendered, however, still will crystallize upon performance into general intangibles. Id.
170. See U.C.C. § 9-401.
171. See N.Y. U.C.C. Law § 9-401(1)(c).
172. See id. § 9-401(1)(b).
173. Tex. Bus. & Com. Code Ann. § 9.401(a)(2).
174. See N.Y. U.C.C. § 9-103.
175. Tex. Bus. & Com. Code Ann. § 9.103 (West 1991 &Supp. 1997).
176. This could be the case in certain circumstances if a debtor that is located in a foreign jurisdiction subsequently opens an office in the jurisdiction where another creditor has filed a financing statement. See infra notes 161-64 and accompanying text.
177. See U.C.C. § 103(c)(3).
178. 15 U.S.C.A. app. art. 1(a) (West Supp. 1996).
179. Id. The United States and Mexico are both Contracting Members. See id. art. 101. Other Contracting Members include Argentina and Chile. See id. Article 1(b) provides for application of CISG "[w]hen the rules of private international law lead to the application of the law of a Contracting State." When only one party to a transaction has ratified the CISG, however, the CISG provides that a nation may declare, at the time of ratification of the convention, that it will not be bound by article 1(b) even if conflict-of-law principles would lead to application of that contracting state's laws, thus exempting application of the CISG unless both parties are contracting members. Id. art. 95. The United States has exercised this option. See id. art. 101, n.19. Additionally, even where the CISG would apply, parties may exclude its application. Id. art. 6.
180. The CISG does not refer specifically to accounts and, indeed, exempts all other similar types of property (e.g., stocks, shares, investment securities, negotiable instruments, and money). Id. art. 2(d).
181. See U.S.C. §9-103(3).
182. See N.Y. U.C.C. Law § 1-105(1) (McKinney 1990).
183. Id. § 1-105 cmt. 1. For a definition of "reasonable relation, " see Seeman v. Philadelphia Warehouse Co., 274 U.S. 403 (1927). See generally Restatement (Second) of Conflict of Laws § 187 (1971).
184. See N.Y. U.C.C. Law § 1-105(2) (McKinney 1990 & Supp. 1997).
185. See id.
186. See supra notes 151-53 and accompanying text.
187. See U.C.C. § 9-302 cmt. 5 (1995). Though the OfFicial Comments to this section state that filing is the only method of perfecting a security interest in accounts, notification is sufficient for perfection in certain circumstances. See infra notes 157-58 and accompanying text.
188. Id. § 9-302(1)(e).
189. see also Petron Trading Co. v. Hydrocarbon Trading & Transp. Co., 663 F. Supp. 1153, 1160 (E.D. Pa. 1986).
190. U.C.C. § 9-302(1)(g).
191. Tex. Bus. & Com. Code Ann. § 9.302(a)(8) (West 1991). For a thorough discussion of § 9.319, see infra text accompanying notes 204-07.
192. See Douglas J. whaley, problems and materials on commercial law 795 (4th ed. 1995).
193. See Consolidated Film Indus, v. United States, 547 F.2d 533, 537 (10th Cir. 1977) (disallowing the exception from filing requirements for a single transaction because by "appearances this constituted most if not all of the accounts . . . of the assignor").
194. Klein Glass & Mirror, Inc. v. Tempglass S., Inc. (In re Klein Glass & Mirror, Inc.), 155 B.R. 718, 721-22 (Bankr. S.D. Tex. 1992) (finding an otherwise "casual and isolated" transaction was not eligible for exemption from filing requirements because it constituted 40% of the debtor's total receivables).
195. See, e.g., Architectural Woods, Inc. v. State, 562 P.2d 248, 250 (Wash. 1977) (en banc) (excepting from filing requirements "assignments of accounts or contract rights that do not 'alone or in conjunction with other assignments ... to the same assignee transfer a significant part of the outstanding accounts or contract rights of the assignor' ") (quoting U.C.C. § 9- 302(1)(e)).
196. See B. Hollis Knight Co. v. Union Nat'l Bank (In re B. Hollis Knight Co.), 605 F.2d 397, 401 (8th Cir. 1979) (requiring an examination of the circumstances surrounding the transaction to determine if the assignment was casual or isolated as part of the "percentage test" ).
197. In re First City Mortgage Co., 69 B.R. 765, 768 (Bankr. N.D. Tex. 1986) (holding that an assignment was within the coverage of Article 9 because neither test for exclusion was satisfied).
198. Larkin v. Wood (In re Wood), 67 B.R. 321, 323 (W.D.N.Y. 1986).
199. Id. at 324.
200. See Miller v. Wells Fargo Bank Int'l Corp., 406 F. Supp. 452, 477 (S.D.N.Y. 1975) (holding that the contract rights of a debtor engaged in a very sophisticated and complex currency arbitrage was subject to the U.C.C. even though only one contract amounting to just under 20% of the debtor's accounts was involved), aff'd, 540 F.2d 548 (2d Cir. 1976).
201. Peter F. Coogan et al., 1 SECURED TRANSACTIONS UNDER THE UNIFORM COMMERCIAL CODE § 3.08(5)(a) (1991).
202. U.C.C. §9-103(5).
203. Id.
204. See Karnes v. Salem Nat'I Bank (In re Fullop), 125 B.R. 536 (Bankr. S.D. Ill. 1990), aff'd, 133 B.R. 637 (S.D. Ill. 1991), aff'd, 6 F.3d 422 (7th Cir. 1993).
205. see also 4 JAMES J. WHITE & ROBERT S. SUMMERS, UNIFORM COMMERCIAL CODE §31-25, at 243 (4th ed. 1995) (stating that "[i]f the interest [in accounts] arises under circumstances truly removed from extraction 'at the wellhead or minehead, ' " perfection of the interest is analyzed according to the usual rule for accounts).
206. U.C.C. §9-103 cmt. 8.
207. Exxon Corp. v. Middleton, 613 S.W.2d 240, 243 (Tex. 1981).
208. See id. at 244 (overruling Butler v. Exxon Corp., 559 S.W.2d 410 (Tex. Civ. App. 1977)).
209. U.C.C. § 9-103(3)(a). Perfection in a single state transaction would be governed by the general rule for accounts, which provides that perfection is accomplished by filing in the office of the department of state. Id. § 9-401.
210. Id. § 9-103(3)(b).
211. A debtor's location is deemed to be that of his "chief executive office" if he has more than one place of business. Id. § 9-103(3)(d).
212. Id. § 9-103(3)(c).
213. see supra notes 153-56 and accompanying text.
214. See Schwarcz, supra note 141, at 135.
215. See U.C.C. § 9-203(1)(a). Section 9-105(1) defines "security agreement" as "an agreement which creates or provides for a security interest, " which Official Comment 1 notes includes the assignment of accounts receivable. Id. § 9-105 cmt. 1.
216. See id. § 9-203(1)(b). For the purposes of Article 9, "value" is defined generally as "any consideration sufficient to support a simple contract." Id. § 1-201 (44)(d).
217. See id. § 9-203(1(c). The term "rights in the collateral" is not defined by the U.C.C., but "rights" itself is defined to include remedies. Id. § 1-201(36).
218. See Law Research Serv., Inc. v. Matrin Lutz Appellate Printers, Inc., 498 F.2d 836, 837-38 (2d Cir. 1974) (holding that, under New York law, an assignment of future rights creates a lien which attaches only at such time as the right accrues, while an assignment of an existing right creates an immediate lien in favor of the assignee).
219. See U.C.C. § 9-303(1).
220. See Barocas v. Bohemia Import Co., Inc., 518 P.2d 850, 853 (Colo. Ct. App. 1974) (holding that the security interest of an assignee of accounts receivable attached as soon as the accounts receivable came into existence).
221. Continental Coffee Prods. Co. v. Banque Lavoro S.A., 852 E Supp. 1235, 1238 n.6 (S.D.N. Y. 1994).
222. For example, if a debtor located in a foreign jurisdiction opens an office in a jurisdiction that provides for perfection by filing, the interest of a secured party who files a financing statement in that jurisdiction will be prior to the interest of another secured party also perfected by notification before filing became appropriate.
223. See Bank Leumi Trust Co. v. Collins Sales Servs., Inc., 410 N.Y.S.2d 617, 618 (App. Div. 1978) (stating that perfected security interests must prevail over presumably subsequent unperfected security interests), aff'd, 393 N.E.2d 468 (N.Y. 1979).
224. U.C.C. §9-312(5)(a).
225. Id. § 9-103(3)(e).
226. See id. § 9-103(3)(d).
227. Id. § 9-103(3)(e).
228. TEX. BUS. & COM. CODE ANN. § 9.319 (West 1991).
229. Id. § 9.319(a). Section 9.319, a nonstandard provision, is the result of Texas' 1983 adoption of legislation designed to improve the creditor position of oil and gas interest owners. See Act of June 19, 1983, ch. 807, § 1, 1983 Tex. Gen. Laws 4657, 4657. The legislatures in Kansas, New Mexico, Oklahoma, and Wyoming have enacted substantially similar statutory lien acts. KAN. STAT. ANN. §84-9-319 (Supp. 1995).
230. N.M. STAT. ANN. §§48-9-1 to -8 (Michie 1978 & Supp. 1995).
231. OKLA. STAT. ANN. tit. 52, § 548.1-.6 (West 1991 & Supp. 1997).
232. WYO. STAT. ANN. § 34.1-9-319 (Michie 1991). Appendix B hereto provides a checklist of lien issues based under Texas law that should be considered by participants in oil and gas securitization transactions. In addition to these lien issues, an originator seeking to securitize future oil and gas re-ceivables must also evaluate whether it will be subject to an existing indenture or credit agreement executed in favor of a creditor in which the originator covenants that it will not create any security interest in respect of its assets. Although a sale of accounts does not create a security interest, distinguishing between a transaction intended as a sale and one intended to create a security interest can be difficult. See supra text accompanying notes 73-78.
233. see also Octagon Gas Sys., Inc. v. Rimmer (In re Meridian Reserve, Inc.), 995 F.2d 948 (10th Cir. 1993).
234. Kelly v. Central Hanover Bank & Trust Co., 85 F.2d 61 (2d Cir. 1936).
235. First Wyo. Bank, Casper v. Mudge, 748 P.2d 713 (Wyo. 1988). Because some existing case law suggests that a sale of accounts may be treated as a security interest therein, sponsors and originators must carefully consider this issue. Finally, to the extent that leases of U.S. federal properties are being transferred to an SPV that is structured as a partnership, certain transfer restrictions apply. See Mineral Lands Leasing Act, ch. 85, 41 Stat. 437 (1920) (codified as amended at 30 U.S.C. §§ 181-287 (1994)).
236. Tex. Bus. & Com. Code Ann. § 9.319(a).
237. Id.
238. Id. The deemed "signature" of the security agreement by the first purchaser satisfies the requirement in § 9.203(a)(1) that a security interest is not enforceable against the debtor and does not attach unless, among other things, "the debtor has signed a security agreement." Id. § 9.203(a)(1).
239. Id. § 9.319(a).
240. Id. § 9.319(b).
241. Id. § 9.319(b), (g).
242. See id. § 9.319(e).
243. See id. § 9.319(c).
244. Id.
245. See Cynthia G. Grinstead, Note, The Effect of Texas U.C.C. Section 9.319 on Oil and Gas Secured Transactions, 63 TEX. L. REV. 311, 328-29 (1984).
246. Tex. Bus. & Com. Code Ann. § 9.319(q).
247. Id. § 9.319(e).
248. See Associates Discount Corp. v. Rattan Chevrolet, Inc. 462 S.W.2d 546, 550 (Tex. 1970).
249. Tex. Bus. & Com. Code Ann. § 9.307.
250. Id. § 9.105(a)(8).
251. 507 F.2d 987 (5th Cir. 1975).
252. Id. at 990.
253. Id.
254. 32 B.R. 403 (Bankr. WD. Tex. 1983).
255. Id. at 407.
256. Id.
257. 11 U.S.C. § 105(a) (1994).
258. see Moran v. Hong Kong & Shanghai Banking Corp. (In re Dcltacorp, Inc.), 179 B.R. 773, 777 (Bankr. S.D.N.Y. 1995).
259. Patrick C. Sargent, Bankruptcy Remote Finance Subsidiaries: The Substantive Consolidation Issue, 44 BUS. LAW. 1223, 1224 (1989).
260. Union Sav. Bank v. Augie/Restivo Baking Co. (In re Augic/Restivo Baking Co.), 860 F.2d 515, 518 (2d Cir. 1988).
261. See Bruce Energy Ctr., Ltd. v. ORFA Corp. (In re ORFA Corp.), 129 B.R. 404, 414 (Bankr. E.D. Pa. 1991).
262. In re Mortgage Inv. Co., 111 B.R. 604, 610 (Bankr. W.D. Tex. 1990).
263. Gill v. Sierra Pac. Constr., Inc. (In re Parkway Calabasas, Ltd.), 89 B.R. 832, 836 (Bankr. C.D. Cal. 1988).
264. The D.C. Circuit and the Eleventh Circuit apply a two-part test under which the proponent of substantive consolidation must first establish a prima fade case to support consolidation, after which the burden shifts to the objecting party to prove that it would be injured if substantive consolidation were ordered. See Reider v. FDIC (In re Reider), 31 F.3d 1102, 1108-09 (11th Cir. 1994).
265. Eastgroup Properties v. Southern Motel Assoc., 935 F.2d 245, 248-49 (11th Cir. 1991).
266. Drabkin v. Midland-Ross Corp. (In re Auto-Train Corp.), 810 F.2d 270, 276 (D.C. Cir. 1987).
267. In re F.W.D.C., Inc., 158 B.R. 523, 524-25 (Bankr. S.D. Fla. 1993). Under this approach, the proponent of substantive consolidation establishes its prima facie case by showing that "(1) there is substantial identity between the entities to be consolidated and (2) consolidation is necessary to avoid some harm or to realize some benefit." Reider, 31 F.3d at 1108. Once the proponent has established its prima facie case, an objecting creditor must establish that (i) it has relied on the separate credit of one of the entities to be consolidated, and (ii) it will be prejudiced by substantive consolidation. Courts are relatively quick to protect creditors who relied solely on the credit of a separate entity, particularly if the creditor did not know of the entity's relationships with other parties. See, e.g., Flora Mir Candy Corp. v. R.S. Dickson & Co. (In re Flora Mir Candy Corp.), 432 F.2d 1060, 1062-63 (2d Cir. 1970).
268. Conversely, a creditor's assertion that it relied on the separate credit of one entity, if unsupported by the facts, will not defeat the prima facie case for consolidation. See, e.g., Central Claims Servs., Inc. v. Eagle-Picher Indus., Inc. (In re Eagle-Picher Indus., Inc.), 192 B.R. 903, 907-08 (Bankr. S.D. Ohio 1996) (discounting the objecting creditors' assertion that they relied on the separate credit of a subsidiary when the facts demonstrated that "no reasonable creditor ... could believe that it was not dealing with" the parent). If the creditor establishes its reliance on the single entity's credit, "the court may order consolidation only if it determines that the demonstrated benefits of consolidation 'heavily' outweigh the harm." Drabkin, 810 F.2d at 276. The Second Circuit has adopted a one-step, two-factor analysis that focuses on (i) whether creditors relied on the entities that are to be consolidated as a single economic unit and did not rely on each entity individually, and (ii) whether the affairs of the entities are so entangled that consolidation would benefit all creditors. The existence of either factor is sufficient to permit substantive consolidation.
269. See FDIC v. Colonial Realty Co., 966 F.2d 57, 61 (2d Cir. 1992).
270. Union Sav. Bank, 860 F.2d at 518. The recent Eagle-Picher opinion from the Sixth Circuit concluded, however, that, for its purposes, the two tests were "not materially" different. Eagle-Picher, 192 B.R. at 905. A few other courts apply a one-step test under which various objective factors originally developed in the context of "piercing the corporate veil" disputes are applied to determine if two or more entities should be substantively consolidated. See Pension Benefit Guaranty Corp. v. Ouimet Corp., 711 F.2d 1085, 1092-93 (1st Cir. 1983).
271. In re Stevenson, 153 B.R. 52, 53 (Bankr. D. Idaho 1993).
272. accord Stone v. Eacho (In re Tip Top Tailors, Inc.), 127 F.2d 284, 288-89 (4th Cir. 1942).
273. Fish v East, 114 F.2d 177, 191 (10th Cir. 1940).
274. See First Nat'l Bank v. Giller (In re Giller), 962 F.2d 796, 799 (8th Cir. 1992) (ordering substantive consolidation to enable insolvent debtors to pursue claims that could generate recoveries which could then be used to pay their unsecured creditors and noting that the creditors of the solvent debtor might be protected by classifying their claims separately from, and treating them more generously than, creditors of the insolvent debtors).
275. In re F.A. Potts & Co., 23 B.R. 569, 573 (Bankr. E.D. Pa. 1982) (ordering consolidation because it would ease the debtors' liquidity problems and facilitate the obtaining of needed long-term financing and concluding these benefits outweighed any possible harm to a secured creditor who would retain its lien position following consolidation).
276. But cf. Union Sav. Bank, 860 F.2d at 520.
277. Flora Mir Candy Corp., 432 F.2d at 1063 (stating that increasing the ease of confirming and effec-tuating a plan of reorganization does not justify substantive consolidation if it will prejudice creditors).
278. The underlying rationale appears to be that, if two allegedly distinct entities are really one and the same, the court, by reason of its jurisdiction over one of the entities, already has jurisdiction over the other. Hence, no procedural safeguards are due an alter ego entity, in contrast to the safeguards to which "true independent non-debtor would be entitled." Bracaglia v. Manzo (In re United Stairs Corp.), 176 B.R. 359, 369-70 (1995) (citing In re 1438 Meridian Place N.W., Inc., 15 B.R. 89, 95-96 (Bankr. D.D.C. 1981)) (holding that creditors who failed to meet the requirements of § 303(a) of the Bankruptcy Code could nonetheless bring alter ego nondebtor affiliates before the bankruptcy court)).
279. An example of this type of case is the recent decision in Shubert v. Jeter (In re Jeter), 171 B.R. 1015 (Bankr. S.D. Mo. 1994). There, the court concluded that the evidence showed that the finances and affairs of two individuals and a Chapter 7 debtor were sufficiently commingled as to justify substantive consolidation, in light of the fact that the corporation was "created in furtherance of efforts to conceal assets from creditors." Id. at 1020; accord In re Tureaud, 45 B.R. 658, 663 (Bankr. N.D. Okla. 1985) (finding substantive consolidation appropriate where nondebtor corporations were alter egos of individual debtor, who created them to hinder and delay his judgment creditors), aff'd, 59 B.R. 973 (N.D. Okla. 1986).
280. See Morse Operations, Inc. v. Robins Le-Cocq, Inc. (In re Lease-A-Fleet, Inc.), 141 B.R. 869, 874-75 (Bankr. E.D. Pa. 1992) (summarizing several cases in which the nondebtors were consolidated with the debtor's estate because they were sham corporations and flagrant instrumentalities, or alter egos of the debtor).
281. see also Sampsell v. Imperial Paper & Color Corp., 313 U.S. 215, 216 (1941) (treating a nondebtor corporation controlled by the individual debtor as part of the debtor's estate because the debtor had transferred his assets to the corporation in bad faith "for the purpose of placing property beyond the reach of. . . creditors").
282. United Stairs Corp., 176 B.R. at 369 (summarizing factors establishing that nondebtors were mere alter egos of the debtor, such as their shared use of raw materials, employees, physical space, telephone, and stationery without any corporate formalities, and noting that the debtor had transferred property to the nondebtors in bad faith for "the purpose of placing . . . assets beyond the reach of its creditors").
283. United States v. Fairfield Constr. Co. (In re Fairfield Constr. Co.), Bankruptcy No. 90-04961-G, 1995 WL 434474, at *3 (Bankr. E.D. Mich. Sept. 12, 1991) (granting summary judgment in favor of substantive consolidation upon a finding that the debtor and nondebtor ignored the corporate veil and acted as one entity).
284. See Eagle-Picher, 192 B.R. at 905 ("A review of the case law dealing with substantiv e consolidation makes it clear that decisions on the subject are fact intensive, and decisions are made on a case-by-case basis.").
285. See supra note 116.
286. See supra text accompanying notes 15-25.
287. HERMES Kreditversicherungs AG is the trade finance agency for Germany.
288. Osterreichische Kontrollbank AD is the trade finance bank for Austria.
289. Nederlandsche Credietverzekering Maatschappij NV is the trade finance agency for the Netherlands.
290. ECGD is an abbreviation for the Exports Credit Guarantee Department of the United Kingdom.
291. ECICS is an abbreviation for the Export Credit Corporation of Singapore.