Another life form bubbling up from the rating agency Petri dish to make a borrower more “bankruptcy remote.” A legal opinion that a borrowing entity is a separate, distinct legal entity not subject to consolidation with any affiliate of the borrowing entity. Routinely sought by secured lenders at the outset of securitized lending transactions to obtain assurance that the assets of their borrowers will not be included within the bankruptcy estate of any other entity (or, to have someone to blame, and seek recovery from, if they do).
Non-consolidation opinion letters are not “clean” opinions but “reasoned” opinions running to many pages of discussions and caveats. Despite their limited nature, the rating agencies value them highly and so they have furnished one of the basic foundations upon which a massive securitized lending edifice has been erected in the U.S. Since the consolidation determination is so fact-driven and involves so much discretion from courts possibly operating with a result-oriented motive and at the behest of the major constituencies in the case, few believe that these opinions have much predictive value.