How to Think About Bankruptcy Risk in Cross-Border Future Flow Transactions After the Avianca Case

Abstract

Companies and banks in emerging markets have become regular sponsors of securitizations of future flows of their receivables. As the primary goal of these transactions is to mitigate sovereign rather than originator credit risk, they differ in certain respects from securitizations of fixed or revolving pools of assets typically found in the U.S. and other developed country markets. The impact of these differences in a bankruptcy sometimes is not well understood. This article explores these issues in light of the recent bankruptcy proceedings of a sponsor of one of these transactions, the Colombian airline Avianca, and concludes that they must assessed on a case-by-case basis.