Orphan structure
Encyclopedia
An orphan structure is a financing term referring to a company whose shares are held by a trustee
on a charitable purpose trust
. The company is said to be an "orphan" as it is not beneficially owned by anyone.
Orphan structures are usually used in offshore structures
to ensure that the assets and liabilities of the subject company are treated as "off-balance-sheet
" with respect to the sponsor of the structure. Other reasons for creating an orphan structure are to avoid or minimise regulation
which might otherwise apply to a structure, and to ensure that the company is "bankruptcy remote
" from companies in the same group as the sponsor.
Orphan structures are relatively common features of securitisation vehicles, where the asset backed
bonds
are issued by the orphan company.
Trustee
Trustee is a legal term which, in its broadest sense, can refer to any person who holds property, authority, or a position of trust or responsibility for the benefit of another...
on a charitable purpose trust
Charitable trust
A charitable trust is an irrevocable trust established for charitable purposes, and is a more specific term than "charitable organization".-United States:...
. The company is said to be an "orphan" as it is not beneficially owned by anyone.
Orphan structures are usually used in offshore structures
Offshore financial centre
An offshore financial centre , though not precisely defined, is usually a small, low-tax jurisdiction specializing in providing corporate and commercial services to non-resident offshore companies, and for the investment of offshore funds....
to ensure that the assets and liabilities of the subject company are treated as "off-balance-sheet
Off-balance-sheet
Off-balance sheet usually means an asset or debt or financing activity not on the company's balance sheet.Some companies may have significant amounts of off-balance sheet assets and liabilities. For example, financial institutions often offer asset management or brokerage services to their clients...
" with respect to the sponsor of the structure. Other reasons for creating an orphan structure are to avoid or minimise regulation
Regulation
Regulation is administrative legislation that constitutes or constrains rights and allocates responsibilities. It can be distinguished from primary legislation on the one hand and judge-made law on the other...
which might otherwise apply to a structure, and to ensure that the company is "bankruptcy remote
Bankruptcy remote
Bankruptcy remote is a term that describes the relative position of one company as it relates to bankruptcy vis-a-vis others within a corporate group, whereby the insolvency of the bankruptcy remote entity has as little economic impact as possible on other entities within the group...
" from companies in the same group as the sponsor.
Orphan structures are relatively common features of securitisation vehicles, where the asset backed
Asset-backed security
An asset-backed security is a security whose value and income payments are derived from and collateralized by a specified pool of underlying assets. The pool of assets is typically a group of small and illiquid assets that are unable to be sold individually...
bonds
Bond (finance)
In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest to use and/or to repay the principal at a later date, termed maturity...
are issued by the orphan company.