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CFA Level I · CFA Level I Exam · Fixed-Income Cash Flows and Types

A bond indenture states that the issuer is a special purpose entity whose legal obligations to bondholders are separate from those of the sponsoring company. The feature that most likely explains this is that the issuer is:

The issuer is best described as a bankruptcy-remote legal entity. A special purpose entity is legally separate from its sponsor, so its obligations to bondholders are independent of the sponsor's, and creditors of the sponsor generally cannot claim the assets that support the bonds.

  1. Aa sovereign body
  2. Ba supranational agency
  3. Ca bankruptcy-remote legal entityCorrect

Explanation

A special purpose entity is legally separate from its sponsor, so bondholders look to the entity's own assets and cash flows. This is bankruptcy remoteness. A sovereign or supranational issuer is a different kind of issuer and does not describe a legally separate SPE.

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