ring fencing

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Ring Fencing

The practice of a company creating a legal entity separate from itself in order to protect certain assets. For example, ring fencing may protect assets from taxation, regulation, or allow the company to hide it from creditors. Ring fencing often makes use of offshore accounting. It is usually legal, but there are limitations, such as maximum amounts that may be protected.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

ring fencing

The legal walling off of certain assets or liabilities within a corporation. For example, a firm may form a new subsidiary to protect, or ring-fence, specific assets from creditors.
Case Study California's electricity deregulation of the late 1990s resulted in the state's electric utilities hitting the financial wall by 2001. Unable by law to raise the rates it charged its customers, the utilities lost billions of dollars buying electricity at rising wholesale prices during an energy shortage in the western United States. To protect one part of the company, publicly traded PG&E, parent of Pacific Gas & Electric, in January 2001 ring-fenced its National Energy Group, which was then able to obtain its own credit rating and borrow money when the remainder of the company was shut out of the financial markets. In April 2001 Pacific Gas & Electric filed for bankruptcy while protected National Energy Group continued to borrow funds for trading power and purchasing turbines. The ring-fencing protected National Energy Group from Pacific Gas & Electric's creditors, which, in turn, allowed the company access to the capital markets. Critics claimed the financial maneuver was an abuse that unfairly shielded assets from creditors.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.
References in periodicals archive ?
Earlier this month, WRU performance manager Geraint John told the BBC: "The ring-fencing is in for this season and in for next season.
The UK resolution and bail-in regime and the structural ring-fencing of systemically important retail/SME deposit-taking entities are designed to prevent the use of taxpayer funds to support failed institutions and to facilitate the going-concern loss-absorption of creditors, including senior unsecured bondholders.
The ring-fencing approach outlined by the Independent Commission on Banking was the outcome of these competing political pressures, and to this extent represents something of a political balancing act.
The ICB's assumption is that imposing losses on creditors will be easier with ring-fencing. Yet the lesson from the Lehman's debacle is that even without a retail operation wholesale banks need not be any easier to resolve.
The BBC has reported that while Vickers is expected to recommend that the government legislates almost immediately over ring-fencing, he will advise that such firewalls be phased in over a number of years.
Moody's Investors Service said that the UK Chancellor's expression of support on Wednesday for the ring-fencing proposals contained in the interim report of the Independent Commission on Banking published in April increased the probability of a negative outcome for bondholders of the affected banks.
It is reported that the commission favours a ring-fencing of "operationally essential" parts of Britain's biggest banks.
Ms Jones said: "Ring-fencing the budget for health in the terms that have been proposed by some would devastate other budgets such as social services, housing and the economy.
Betbrokers punter Jan Midgeley, who deposited pounds 1,480 with the firm just 25 minutes before it crashed, said: "What is the point of ring-fencing money if this is the result?
He said: "Ring-fencing contributions will ensure that customers' money can only be returned to customers and agents should the company go bust.
Under the ring-fencing modifications customers will be protected from any risks that might be associated with the parent company.
If a target population is smaller than the critical community size and thus cannot maintain a pathogen, completely isolating the target population from any transmission from outside (ring-fencing) will cause the pathogen to become extinct in the target population.