The recent ruling in the General Growth Partners (GGP) bankruptcy case could cause some serious damage to CMBS structuring as well as the securitization market as a whole. As a lender to a "bankruptcy remote" vehicle I'd now be far more cautios. Collateral aside, the equity holder of the vehicle can potentially drag the vehicle I am lendng to into bankruptcy even if the collateral pool is perfectly fine. Then the bankrupt entity can suck cash (and possibly other assets) from the vehicle. Wait, that was supposed to be part of the collateral I was lending against! That's like lending someone money against their house and having the borrower sell a portion of the house to someone else. Ouch!
So much for "bankruptcy remoteness" in the financing vehicles. If the rating agencies were on the ball, they'd be downgrading CMBS tranches where the equity holders may be in trouble.
Here is the background story on this in the FT.
The main argument against piercing the vihicles was provided by the Commercial Mortgage Securities Association and Mortgage Bankers Association. Here is the key quote presented to the court.