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Thomas D. Kearns


Rating Agency Perspective on LLC Law

Moody’s hits a borrower with a “credit negative” if the borrower is organized in a state other than Delaware.

In a discussion on an email list that I started by talking about the update to my list of the differences between Delaware and New York LLC law, Daniel Rubock of Moody’s commented on the importance to Moody’s of the organization of a borrower in Delaware. With his permission I have reproduced his comment below  in full with only clarifying edits:

“A key difference cited is that Delaware permits the waiver of an independent manager’s fiduciary duty to the equityholders, whereas New York does not. In Moody’s view, this waiver is the lynchpin to sidestepping the “corporate family doctrine” that just about mandated the independent directors voting for bankruptcy in the General Growth Properties case in 2009. For securitized loans, the absence of such a waiver or uncertainty about its enforceability, whether in New York  or any other state of formation, is credit negative.”

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