Legal Forms and Advantages
A SCC can take various forms, including that of a company, partnership or a trust and additionally each cell will require a board of directors’ resolution and the notification to the MFSA (authorisation is necessary in some cases). It is one company structured in two parts, the core and the unlimited number of cells each having ring-fenced balance sheets. Thus, if there are multiple projects with different risks, each project will take a different cell.
Using Listed Asset Backed Securitization
Following the 2008 global financial crisis, more stringent regulations were placed on banks which in turn have resulted in restricted levels of lending, especially to SMEs, property and infrastructure development projects, factoring, receivables and commodities. This ended up in an increase use of the debt capital markets, and particularly the asset-backed securities market.
An asset-backed security is a flexible tool for transforming comparatively illiquid assets into transferable securities by having the SCC Cell taking ownership and then issuing securities which can also be listed on a stock exchange. They typically offer investors basic features such as, a fixed maturity date, fixed redemption amount and fixed or floating returns.
Since they can be traded on a regulated market, transparency is maximised through full disclosure, including an offering document. Investors are able to know the risk and return inherent in the underlying assets and can exit by selling their investment to other market participants.
The main advantages of using Malta SCCs are the following:
Activities of a SCC can achieve tax neutrality and non-Maltese resident originators and investors can typically also achieve additional tax advantages;
Malta’s double taxation agreements allows additional advantages on the underlying assets;
Activities which are core and essential to the management of securitization are not subject to VAT;
Illiquid assets can be repackaged and issued backed as listed securities;
SCC Cells can provide credit enhancement to investors through cell shares or capital notes;
Cellular profits can be kept inside the cell this resulting in tax deferral;
SCC Cells provide bankruptcy remoteness;
Securities issued by the SCC cells can be passported to qualified investors;
SCCs are excluded from AIFMD and Issuers does not need to be licensed;
A number of structuring possibilities are available.
From a buy-side, typical clients will include, asset managers and small-medium size companies seeking to raise capital or refinance income generating assets in a cost-effective way.
From a sell-side, typical investors are family offices, financial institutions, insurance companies, pension and hedge funds seeking attractive yields for the medium to long-term.