“Credit enhancement” addresses the risk of nonpayment by obligors while “liquidity enhancement” addresses risk of payment at the wrong time. Tax issues are major concerns. 1.4 The state of the EU securitization market 6 2. The structure selected must be able to withstand the bankruptcy of the originator. 0000002188 00000 n Before describing the particular structures employed in operating-asset or whole-business securitization, it is perhaps worthwhile for me to explain the terminology “whole-business securitization” and … 0 whole-business securitization requires extensive legal and rating-agency structuring. ... securitisation structures, where it would be unusual for amounts to be rolled-up for such a long period without being paid out. related. Fourth, it enables assets to be matched with liabilities. Whole business securitization, also called franchise royalty securitization, first appeared in 2006 and 2007, allowing franchise-based businesses to effect a complete makeover of their capital structure. In addition, a securitisation in the UK may be structured as a secured loan – for example, in a whole business securitisation or a commercial real estate securitisation (CMBS). Both were found to have big loopholes in the structure when they went wrong. Its US$410m whole-business securitisation, called HONK 2015-1, is IFR’s North America Structured Finance Issue of the Year because it threw open the doors to lower-cost, repeatable funding that previously was reserved only for the nation’s biggest fast-food restaurants. Legal issues to be considered include compliance with securities laws and laws governing conduct of investment activities. “Whole busi- ness” securitisation is essen- tially a secured loan granted by an SPV to the relevant compa- ny. At the end of July 2005 Marston's PLC (formerly The Wolverhampton & Dudley Breweries PLC) announced the marketing of a £805m securitisation of approximately 70% of its managed and tenanted estate. Securitisation of a proportion of our managed and tenanted estate. 0000003537 00000 n In addition, a securitisation in the UK may be structured as a secured loan – for example, in a whole business securitisation or a commercial real estate securitisation (CMBS). 811 0 obj <> endobj This was a major reason driving the London City Airport transaction where the term of the notes issued was far longer than that available in the bank debt market. Here, the cash flows derive not from the repayment of debt or other pre-contracted cash flows or receivables but from the entire range of operating revenues generated by a whole business. Most of the growth in ABS issuance is now taking place outside the United States where ABS issuance increased by 71.2% in 1999 over 1998 levels to $47.3 billion. This type of securitisation uses a secured loan structure (as opposed to a true sale structure). Another issue is how best to effect credit and liquidity enhancement. These “whole business” securitization structures have particular relevance to international project finance transactions and demonstrate that, increasingly, the demarcation between securitization and project finance is being blurred. If the originator is in administration, there can be no true control.”. 0000061272 00000 n Whole business securitisation, and therefore pub securitisation, usually uses a secured loan structure whereby a loan is advanced by a special-purpose vehicle (the ‘issuer’) to a pubco, or ‘borrower’. The most common type of securitizations are receivables sales or “true sale” securitizations. THE ASSET BACKED, WHOLE BUSINESS AND SYNTHETIC STRUCTURES - A comparative study between the UK and Colombia By Santiago Moreno ... To reach that, an analysis of the securitisation legal structure in the UK and in Colombia is done, focusing in the underlying secured transactions. The Securitization Process Prof. Ian Giddy Stern School of Business New York University Asset -Backed Securities In terms of the “control” issue, under English law, a first ranking fixed charge will largely be unaffected by liquidation. A whole business securitization is a finance method backed by cash flows generated from “business” itself (or sometimes including cash flows generated from asset sale, etc.) There may be stamp duty, value-added tax, and withholding tax to pay, especially after transfer of assets to the purchaser and on any marketable securities issued under the securitization. Th e intention of this article is to get the reader acquainted with the fi nancing terminology whole business se-curitization, by which the elements that make For developments affecting project finance and the energy sector. ritized. Given the importance of whole business securitization techniques for project finance, this article examines the background to such transactions generally and the London City Airport transaction in particular. rather than backed by “assets” (accounts receivables, leases receivables, etc. First, it can be a cheaper and more flexible source of long-term financing, particularly for companies below investment grade. A satisfactory rating was nevertheless forthcoming. It is also becoming more familiar to regulators outside the United States. 0000004457 00000 n In addition, first priority security interests must be granted over the assets of the operating company which should secure, in full, the principal and interest on the ABS. 0000002822 00000 n But investors should be aware that deals aren t always legally watertight. In order to undertake a securitization, it is usually important that the asset pool generates a stable and predictable cash flow because it is that cash flow that will service principal and interest payment obligations under the marketable securities. Currently, the penalty for non-compliance is a punitive capital charge against investors’ balance sheets. Thus, the pooled assets must be low risk and the loss experience understood. More recently, U.S. corporate securitization techniques started expanding to other businesses in which intangible assets such as … Certainly floating charge assets should not primarily be relied upon to generate funds to pay investors. In this regard, the term and regularity of payment of the asset pool will be a deal driver as will the credit quality of the pool. WHOLE BUSINESS SECURITISATION.As stated above,there is no fixed route for securitisation.For example,the UK is unique in that whole business securitisations are possible.Examples include RHM,The Really Useful Group and Welsh Water.With a whole business securitisation,the securitised assets remain the property of the The cash flows of the target group as a whole are then applied to repay the loans Such a technique allows to finance or refinance operating assets of the company. To date, the whole business securitization technique has been mainly used as an important refinancing tool — primarily for acquisition financings. Securitization is a process by which illiquid assets, in the nature of cash flows and connected contract rights, are pooled and repackaged into marketable securities representing claims against the illiquid pool. With this growth has also come another feature: innovative securitization structures have been developed outside the United States, based on local legal concepts, that enable whole businesses rather than isolated receivables to be securitized. Once isolated from the originator’s credit risk, such cash flows can be used to back securities issued in the capital markets — called “asset-backed securities” or “ABS” — having a higher rating than securities issued by the originator! For more information related to these transactions, please refer to Fitch's UK Whole Business Securitisation Rating Criteria. If banks, their overheads and costing structures are “disintermediated” and finance is sourced directly from deep and liquid capital markets, competitive funding advantages arise for borrowers able to tap into such markets. Operating and financial covenants for a whole-business securitisation tend to be largely similar to those for leveraged loans. Whole business securitization. The illiquid asset pool will also usually provide security for the debt service obligations of the marketable securities. 0000003203 00000 n Whole-business … 0000003807 00000 n It was also praised for the tenacity of the management team in getting such a complex deal done to specifications in less than ideal circumstances over a short period of time. 0000007151 00000 n Its US$410m whole-business securitisation, called HONK 2015-1, is IFR’s US Structured Finance Issue of the Year because it threw open the doors to lower-cost, repeatable funding that previously was reserved only for the nation’s biggest fast-food restaurants. A secured creditor can appoint an administrative receiver and block the appointment of an administrator provided that the security package contains a floating charge over the whole or substantially the whole of the property, assets and undertaking, present and future of the applicable company. xref As a result, in Europe, major infrastructure financings are now using securitization, in conjunction with project finance techniques, to enable projects to be financed. 0000000656 00000 n These “whole business” securitization structures have particular relevance to interna-tional project finance transactions and demon-strate that, increasingly, the demarcation between securitization and project finance is being blurred. Third, it is a method for widening a company’s sources of finance thus enhancing liquidity. 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