To separate a particular asset or group of assets using a structural technique that protects them from the financial instability or bankruptcy of the owner (the transferee of the assets) or an affiliate of the owner of the assets. Ringfencing is usually accomplished through the creation of a special purpose vehicle (SPV) by a parent entity to which the assets to be ringfenced are transferred. If the SPV and its parent and affiliates observe certain corporate and organizational formalities by using a number of mechanisms in the SPV's organizational documents, the ringfenced assets are, to a certain extent, protected from the bankruptcy estate of a bankrupt parent or affiliate of the SPV. That is, they are bankruptcy remote.

To facilitate this bankruptcy remoteness, the SPV usually holds only those assets and conducts no other business other than as relates to the ringfenced assets. With this structure there is a greater likelihood that the ringfenced assets and the cash flows they generate cannot be used to satisfy the creditors of a bankrupt parent or affiliate of the SPV than if the assets were not ringfenced. Investors in most securitization and structured-finance transactions are protected from the potential liabilities of originators and sponsors using this technique. For more on bankruptcy-remoteness in securitization transactions, see Practice Note, Securitization: The SPV.

For more information on the parties to a securitization transaction, such as the originator and sponsor, see Practice Note, Securitization: US Transaction Parties and Documents. For more information on securitization generally, see Practice Note, Securitization: US Overview.