What is Securitisation
Securitisation is a flexible, efficient and low-cost way of raising capital. It is a type of structured financing in which a pool of financial assets with predictable cash flows or rights to future income streams is transferred from an Originator to a Cell or compartment within a Securitisation Vehicle. This Cell subsequently issues debt packages backed by the assets transferred and their future cash flows.
In Malta, the issuance of the debt can be done on a private placement basis or issued through a Stock Exchange as per below:
Main Parties involved in Securitisation
The main parties are the Investors, Originator, Obligor and the Securitisation Vehicle with its Cells. In addition the promoter will be appointing service providers depending on the business type in question.
Investors
Investors buy the securities issued by the Cell and are entitled to receive the repayments and interests and/or gains based on the cash flow generated by the underlying assets. The minimum amount per investor is of Eur100k or equivalent and investors should not be retail, with these typically being institutional ones such as pension funds, insurance companies, investment funds, family offices or HNWIs.
Securitisation Vehicle
A special law in Malta allows for the set-up of an entity which will be subscribed for by initial shareholders (the Core capital) and which can eventually issue an infinite number of compartments (Cells) through which securities will be issued. This is done in a cost and tax efficient way.
Originator
The Originator is the entity that assigns the assets or risks to the Cell. Originators include banks, captive financial companies, manufacturers, building companies, insurance companies, factoring and securities firms.
Obligors
Obligors owe the Originator payments on the underlying loans, assets, etc and, depending on the contractual agreements, are usually ultimately reflecting the performance of the issued securities. As obligors are often not informed about the sale of their payment obligation, in many cases, the Originator maintains the customer relationship as service provider.
Advantages and Benefits of Securitisation
To Originator
Possibility of refinancing
Efficient and cost-effective access to capital markets
Minimise issuer-specific limitations on the ability to raise capital (example, no historical track record is required)
Ability to convert illiquid assets to cash or quoted instruments, this potentially improving the balance sheet position (particularly applicable to banks)
Diversification of funding sources, investor base and transaction structures
In case of private placements, legal documentation is light and quick, with lower costs
Complete mergers and acquisitions, as well as divestitures done more efficiently
Transfer risk to third parties
Decreases capital requirements for banks and insurance companies, allowing them to also buy back as investors, thus transforming the asset type on their balance sheet
Possibility to have credit enhancements through cell shares or capital notes
Particularly with a “true sale”, there can be positive impacts on the balance sheet, profit and loss account and cash flow of the Originator..
To Investors
Portfolio diversification in terms of yield, risk and maturity
Tailored sources of investments
Higher returns
Credit risk may be reduced through insurances and/or credit enhancements
Can also be the same Originator
Other
Tax neutrality, with possible tax structuring
VAT is not applicable to core and essential activities to the management of the vehicle
Tax deferral possibility
Issue may be credit rated
Issue may include credit enhancements
Issue can be listed on an Exchange, dematerialised and/or tokenised, this facilitating transferability and sell-ability on the secondary market
Cells provide bankruptcy & creditors remoteness
Securities or tokens can be passported to qualified investors
For further information please contact Fiduscorp:
Mario Buttigieg - Managing Director
Email or Skype: mario@fiduscorp.com
Tel or Whats App: 00356 99829824
Disclaimer
Copyright Notice: ©2018 FIDUSCORP Limited. The contents of this article have been prepared for informational purposes only and do not constitute or contain any type of advice. Neither the publication of such information nor your receipt of it will create a commercial or legal relationship. Consequently, you should not act or rely upon the information contained in this article without seeking professional council. All rights reserved.