Investors Beware a New Corporate Debt Loophole

Shutterstock photo
Investors Beware a New Corporate Debt Loophole

(New York)

Investors in fixed income need to be aware of a brand new loophole that was just opened to Delaware-based companies. A new provision allows companies (specifically LLCs) to split in two and divide their assets and liabilities between them as they see fit. The rule would allow companies to put certain assets beyond the reach of creditors, for instance putting debt in one entity and assets in another. The big problem is that most bonds don't have provisions to protect against this behavior because it didn't exist as a concept or legal process until it was approved this month. Another issue is that many contracts are written from the perspective of New York law, but that might have not much weight with Delaware-based rules.

FINSUM : This is a messy problem for anyone who owns private or smaller company debt. We thought investors should be made aware right away.

  • delaware
  • corporate law
  • bonds
  • debt
  • fixed income
  • liabilities
  • assets
  • llcs

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Bonds

More from FINSUM




Research Brokers before you trade

Want to trade FX?