Securitisation Law
Within the meaning of the Securitisation Law, the securitisation vehicles are legal entities which carry out securitisation activities in full or which participate in securitisation transactions either by assuming all or part of the securitised risk or by issuing securities for financing purposes.
The Securitisation Law of the 22nd of March 2004 allows a wide range of assets such as trade receivables, mortgage loans, shares and, essentially, any tangible or intangible asset or activity with a reasonably ascertainable value or predictable future stream of revenue to be securitised (represented by registered or bearer securities). The structure of the transaction and the origin of the risk that is the object of the securitisation can be achieved by transferring the legal ownership of the assets, as a true sale, or by transferring credit risk linked to the assets.
The types of transactions qualified under the Securitisation Law are the following:
- Granting credits instead of acquiring them on the secondary market provided that those credits are set up upstream by or through, a third party;
- Securitisation of existing portfolios and partially drawn credits and of automatically revolving credits under predefined conditions which does not lead by any means to the securitisation vehicle performing a professional credit activity in its own name;
- Acquiring goods and equipment and structuring it in a similar way to a leasing operation;
- Repackaging structures consisting in a setting up platforms for structured products;
- Holding of shares and fund units providing that the securitisation does not actively intervene in the management of such entities and acts solely as management investor interested in receiving a cash flow, such as dividends, etc.
Strengths
Securitisation improves return on capital by converting an on-balance-sheet lending business into an off-balance sheet fee revenue stream that is less capital intensive. Securitisation may have the following benefits:
- Provide efficient access to capital markets, funding costs can be reduced thanks to the redefinition of the rating.
- Minimise issuer specific limitations on ability to raise capital.
- Convert illiquid assets to cash.
- Diversify and target investors, funding sources, base and transaction structures. Business can expand beyond existing bank lending and corporate debt markets by tapping into new markets and sets of investors. The new funding sources may reduce the costs and increase the negotiating power.
- Raise capital to generate additional assets or apply to other more valuable uses.
- Generate earnings.
- Complete mergers and acquisitions, as well as divestitures, more efficiently through combined structures.
- Transfer risk to third parties.