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Pace University

Investments

2014

Journal

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Full-Text Articles in Law

Too Complex To Perceive? Drafting Cash Distribution Waterfalls Directly As Code To Reduce Complexity And Legal Risk In Structured Finance, Master Limited Partnership, And Private Equity Transactions, Ralph C. Mayrell Jul 2014

Too Complex To Perceive? Drafting Cash Distribution Waterfalls Directly As Code To Reduce Complexity And Legal Risk In Structured Finance, Master Limited Partnership, And Private Equity Transactions, Ralph C. Mayrell

Pace Law Review

This Article proposes that complex structured finance transactions involving sophisticated investors should adopt an analogous solution to the home construction agreements’ strategy of contracting by reference to blueprints. First, dealmakers should, preferably by choice, place as much of their waterfall distribution specification and related inputs as possible into automated, programmatic representations that will be used to make the actual distribution. In many cases, these agreements already have programmatic representations, so this change should pose relatively few practical challenges logistically. Second, they should, like their counterparts in construction contracts, define the terms of those waterfalls by reference to their functional representations. …