True Sale Opinion

A legal opinion, typically required by investors and rating agencies before closing a structured legal-asset facility, confirming that the transfer of claims or funding receivables from the originator to the SPV constitutes a genuine sale rather than a secured borrowing that would leave the assets exposed to the originator's creditors in a subsequent bankruptcy. Courts distinguish a true sale from a disguised financing by examining factors including whether the transferor retained a right to repurchase the assets, whether the transferor bears ongoing risk of loss on the assets after transfer, whether the sale price reflected a fair market value rather than a formulaic loan-like amount, and whether the parties' own documentation and accounting treatment consistently describe the transaction as a sale. Because the consequences of a recharacterization are severe — the assets could be pulled back into the originator's bankruptcy estate, defeating the entire purpose of the SPV structure — true sale opinions are drafted conservatively and updated whenever the underlying transfer mechanics change.

Without a clean true sale opinion, the bankruptcy-remoteness protections built into the SPV structure are largely illusory, since a court that recharacterizes the transfer as a secured loan can unwind the entire isolation the structure was designed to achieve. Structurers negotiate the transfer price and retained-risk provisions specifically to support the true sale characterization, sometimes accepting a lower purchase price for the asset pool than the originator would prefer in order to strengthen the opinion's defensibility.