The Securitisation 2018 guide provides expert legal commentary on key issues for businesses. The guide covers the important developments in the most significant jurisdictions.
Last Updated April 27, 2018
Since the demise of Lehman Bros in September of 2008, securitisation has overcome a seemingly endless assault from lawmakers and regulators around the globe. With some justification, but for the most part unfairly, many have singled out securitisation as the primary cause of the financial crisis of 2008-09 and challenged its value to society. My best advice to our industry at this time is found in a quote from the great American statesman and philosopher, Samuel Adams (brother to the second President of the US, John Adams), who in 1771 advised "The necessity of the times calls for our utmost circumspection, deliberation, fortitude and perseverance."
In fact, our industry has been circumspect, has spent huge amounts of time, effort and expense after intense dialogue with regulators and legislators, deliberating on how best to reform itself, and most importantly, through its own fortitude, has never lost faith in itself. As a result of such reform and fortitude, our industry has persevered and I predict that the securitisation industry will continue to thrive because securitisation is one of the most effective means yet devised to finance the so-called "real economy."
This Global Practice Guide ("Guide") is intended to serve as a practical means by which legal practitioners may use their knowledge of the law to enable securitisation to persevere. Over the nine years since the beginning of the financial crisis, the most important development for securitisation, anywhere and everywhere in the world, has been the creation of a vast and complicated regulatory scheme that attempts to rein in securitisation's perceived weaknesses and to strengthen its valuable structures, purposes and uses. Accordingly, much of this Guide is an attempt to alert legal practitioners to the scope and content of these new rules.
In composing the questions that call for the answers presented in this Guide, we have attempted to give the legal practitioner a thorough guide to the types of issues that may arise in any country for securitisation and a basis for beginning to structure most of the kinds of securitisations that issuers may use in the actual market place. We have also tried to focus on the real issues that may arise in order to make this Guide itself a practical one.
We begin by summarising the ways that various types of laws of general application will almost certainly affect securitisation transactions. We focus on insolvency laws, collateral transfer and lien validity laws, tax laws and other similar relevant laws. We also discuss the types of opinions that legal practitioners typically will be asked to deliver on account of the effects of such laws.
We then move to the most difficult topics in this Guide, the content of regulations and laws that have been adopted specifically relating to securitisation since the financial crisis. These include regulations on disclosure, retention of credit risk for sponsors or originators, periodic reporting, rating agency regulation, capital and liquidity requirements related to securitisation, derivative regulation related to securitisations such as interest rate and currency swaps applicable to Special Purpose Entities ("SPEs") and credit default swaps, rules for compliance with regimes such as "Simple, Transparent and Comparable" created by IOSCO and the Bank for International Settlements, and their effect on required capital and liquidity, rules similar to the so-called "Volcker Rule" in the US, rules that regulate banks with regard to securitisation, rules regulating the form of SPEs, rules on credit enhancement, rules governing investments in securitisation by different types of entities such as pension funds, and, if appropriate, accounting rules for sales (vs secured loans) and consolidation of SPEs. We also examine enforcement of the new rules and applicable legal opinions.
After regulatory review, we turn to documentation. Here, we focus on provisions for the transfer of financial assets themselves, representations and warranties, covenants, defaults, indemnities and remedies. Again, we include provisions on legal opinions.
The next topic is the roles and responsibilities of the parties to securitisations. We examine material responsibilities, obligations and rights of issuers, sponsors, underwriters and placement agents, servicers, investors and trustees.
Finally, we conclude with common structures for different types of financial assets commonly securitised. These include retail and dealer auto receivables, auto leases, equipment receivables, consumer credit receivables, market-place lending, revolving credit such as credit cards, commercial and residential mortgages, trade receivables, CLOs, and whole-business receivables.
Of course, the above summary is just that, a mere summary servicing as a portal to the extensive information that you will find for 18 countries in the following Guide itself. We welcome questions, comments and suggestions for improving this Guide as new editions are published from year to year.