The Bankruptcy Code limits in many ways the rights of nondebtors under contracts with a debtor in bankruptcy. There are, however, some crucial exceptions, which Congress deemed important for the orderly function of the securities markets. In particular, agreements governing securities repurchase (or repo) transactions involving a financial institution may be terminated and liquidated notwithstanding the bankruptcy filing of the repo seller.

Rated and other debt issuances are often structured with borrowers that are special purpose entities, whose governance provisions are designed to inhibit bankruptcy filings. A recent District of Delaware bankruptcy court case, while not directly on point, throws into question the premises underlying the efficacy of such provisions.

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