whole business securitisation structure December 24, 2020 – Posted in: Uncategorized

As a result, in Europe, major infrastructure financings are now using securitization… In terms of the “control” issue, under English law, a first ranking fixed charge will largely be unaffected by liquidation. One issue is the benefits sought to be achieved by the originator of the asset pool and how to structure the deal to achieve them. Whole business securitisation 16 Structured Finance International www.SFInews.NET July/August 2002 S ecuritisation is like Viagra for com-panies.” So said Guy Hands, proba-bly the person who has done most to bring securitisation to the forefront of European corporate … (This would not be the case if notice of the assignment were given to the debtor by the seller — a perfected “legal” assignment.) He also has extensive experience of Master Trust Structures. However, such a structure may be used to finance the construction or development phase of a project if a third-party credit wrap from an insurer or other rated entity is obtained or if one has “free” unencumbered assets from existing projects for use as over-collateralization. 0 At a minimum, rating agencies require floating charges to be included in the security package for a “whole business” securitization. Administration is another issue. these criteria, whole business securitisation was – before the meltdown – rapidly becoming the vehicle of choice for replacing high-yield leveraged buy-out debt and thus a potentially important source of liquidity for the heated M&A market. x�b```� ��� �����8� ��� ��r� �zÙ��>�?���Xq:��ay������Ă.���#;z��V��7)�X|�c��D��).�6QS4+�8�j7�� i#���iyZ����. This is a procedure under which a creditor or director can petition the courts to appoint a licensed insolvency practitioner as “administrator” of a company if to do so would achieve a better realization of the transferor’s assets than would be achieved on a liquidation or the survival of the company as a going concern. Servpro was the strongest debut issuer in the growing whole business securitisation market in 2019, with strong investor demand helping lead bank Barclays push boundaries with the structure and pricing. This type of securitisation uses a secured loan structure (as opposed to a true sale structure). ... the Group securitisation to provide stability and flexibility to the Group in order to manage the Secured Financing structure. 811 0 obj <> endobj Whole business securitization. In a recent transaction, key operating companies of the Tussaud Group granted mortgages over the shares of companies located in markets where direct security was not possible together with covenants to ensure that such “downstream” companies did not incur debts or grant security over or dispose of their assets. Operating and financial covenants for a whole-business securitisation tend to be largely similar to those for leveraged loans. Securitization is a financial arrangement that consists of issuing securities that are backed by a pool of assets, in most cases debt. Both were found to have big loopholes in the structure when they went wrong. Take two recent cases: Welcome Break and Marne et Champagne. Securitisation financing can also be raised via so-called “whole-business” securitisations in which a special purpose vehicle is established to lend, to the target group, funds raised via rated debt securities secured over the assets of the target group. B�$ECC�z9l@+:�B$;b��`��6�9�@����"���.�{�F New Structures: “Whole Business” Securitizations Of Project Cash Flows. A satisfactory rating was nevertheless forthcoming. 0000002822 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’. Third, it is a method for widening a company’s sources of finance thus enhancing liquidity. Typical credit enhancement alternatives include injecting “extra” financial assets into the securitization — such as additional receivables — and using reserve accounts and credit wraps (such as insurance and letters of credit from third parties). A “true sale” structure does not easily accommodate originators with contracts that are difficult to transfer, businesses that have numerous bespoke contracts generating receivables, businesses that generate cash revenues or businesses that require much time and management to generate revenues. 0000000656 00000 n Second, securitization can provide balance-sheet relief through the removal of securitized assets and corresponding funding liabilities from the balance sheet of the originator (thereby improving capital adequacy ratios in particular for financial institutions and reporting ratios, such as debt-to-equity ratios and return-on-assets ratios). First, it can be a cheaper and more flexible source of long-term financing, particularly for companies below investment grade. These involve the transfer of assets by the originator to a bankruptcy-remote special-purpose vehicle that issues debt to fund the purchase. %%EOF Lehman Brothers Asset-Backed Securities Index: A fixed-income index that focuses on asset-backed securities. In a whole business securitisation, the companies involved in the securitisation often form part of a wider corporate group which includes members that are not involved in the securitisation. “Whole busi- ness” securitisation is essen- tially a secured loan granted by an SPV to the relevant compa- ny. The whole business securitisation technique uses a variant of the concept of a secured loan rather than a true sale structure (Davidson et al, 2003, pp. 0000002344 00000 n Our whole business securitisation comprises around £1.66 billion of debt as at October 2019 in the form of tradeable, listed bonds secured over the assets and cashflow of the majority of the business. 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. 0000003203 00000 n For developments affecting project finance and the energy sector. 459-460). As the pool liquidates and pays out the lenders, the remaining reserves vest in the seller. The cash flows of the target group as a whole are then applied to repay the loans 0000002188 00000 n For example, Standard & Poor’s focuses on four key concerns. 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.) A security with a higher rating than another security will attract relatively lower financing costs. “Credit enhancement” addresses the risk of nonpayment by obligors while “liquidity enhancement” addresses risk of payment at the wrong time. 0000001512 00000 n Currently, the penalty for non-compliance is a punitive capital charge against investors’ balance sheets. Fourth, it enables assets to be matched with liabilities. ... securitisation structures, where it would be unusual for amounts to be rolled-up for such a long period without being paid out. As a result, in Europe, major infrastructure financings are now using securitization, in conjunction with project finance techniques, to enable projects to be financed. A whole business securitisation (WBS) may be likened to a securitised LBO – that is, it is the value of a business, reflected by the residual cashflows of the business, which is being securitised here. The cash flows of the target group as a whole are applied to repay the loans to the issuer and to repay the rated securities to investors. 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. ritized. This type of securitisation uses a secured loan structure (as opposed to a true sale structure). 0000004457 00000 n This transaction was the first time that a “whole business” securitization was used in the context of financing a project in the United Kingdom and provided the issuer with fixed-rate finance for 21 years — terms that the bank debt market simply could not match. 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. ABS investors are usually institutional investors, such as pension funds, who lack the resources to evaluate ABS risks. This funding advantage, in part, explains the popularity of securitization as a financing technique. In a default scenario, troublesome bank group dissenters are less likely to be prevalent as they will have been replaced by bondholders. Whole-business securitization enables companies to issue bonds more cheaply . The most common type of securitizations are receivables sales or “true sale” securitizations. The list of acronyms and abbreviations related to WBS - Whole Business Securitisation Bond trustees are also less influenced by relationship factors than an agent bank on a bank deal. The Securitisation Regulation includes an almost total ban on re-securitisation, which is defined as a securitisation in which any one of the underlying exposures is a securitisation position. The £572 million refinancing of the deal was again launched as a conduit CMBS opco/propco structure… If the originator is in administration, there can be no true control.”. 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. In 1999, global ABS issuance reached $198.8 billion (despite concerns about Y2K and interest rate hikes). Such a technique allows to finance or refinance operating assets of the company. 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. 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. He has been involved in and advised on a whole range of transactions from RMBS in prime and sub prime markets to whole business securitisations. Securitization provides a number of potential benefits over conventional bank finance. 0000003281 00000 n 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. 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). That doesn t mean securitisation doesn t work full stop. Whole business securitisation The structure of a whole business secu-ritisation involves the issue of bonds by a special purpose company which then on-lends the proceeds on a secured basis to the operating company which holds the business assets. Administration and collection of the pool must also be considered, in particular, to minimize the risk of co-mingling of assets of the administrator and the pool. Whole Business Thu 20 Feb, 2020 - 10:37 AM ET Fitch Ratings-Chicago-20 February 2020: Securitizations backed by Proved Developed Producing (PDP) securitizations have a certain … %PDF-1.6 %���� 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. “ABS are a means of diversifying a portfolio into low-risk products that, by virtue of their structure, offer exposure to a diversified portfolio.” “Since the underlying assets are diversified, clearly identified, and pledged to the holder, the credit rating agencies claim that in the event of … Oil and Gas Securitizations, PDP Operating Risk Lower than U.S. This enables the operating company to access a wider group of potential investors Securitization is considered to be “good for business” by compelling an issuer to be more disciplined in how it operates its businesses thereby improving systems, documentation and the issuer’s understanding of the real cost of its portfolio. Whatever structure is adopted for a particular securitization transaction, a range of issues must be considered in nearly all cases. ... the structure … Where securities are to be rated, they are unlikely to be rated higher than the seller’s rating in the absence of substantial elimination of seller credit risk. Direct or third-party liquidity enhancement is common in the form of loans, the structure of which will be settled having regard to capital adequacy considerations of the lender. Five specific In order to rate a whole business securitization, rating agencies have adopted an approach that combines elements of a structured or securitization transaction and a corporate transaction. Another issue is how best to effect credit and liquidity enhancement. 0000001895 00000 n whole-business securitization requires extensive legal and rating-agency structuring. ... the Group securitisation to provide stability and flexibility to the Group in order to manage the Secured Financing structure. An automatic stay on security enforcement can apply on the appointment of an administrator, and the administrator can dispose of assets charged to other creditors whether under fixed or floating charges. The introduction of securitization-friendly laws in markets such as Italy and France has caused corporates and regulators to embrace securitization to such an extent that it is no longer viewed in such markets with suspicion but rather as an important and necessary finance technique. Banks also need to charge for credit risk and, in the context of project finance, project risk. Industry fundamentals 9 2.1 Benefits of securitization 9 2.2 The process 10 2.3 Types of asset-backed securities 10 2.4 Risk and return profiles of tranche notes 11 2.5 The cash flow waterfall 12 2.6 True sale securitization 13 2.7 Synthetic securitization 14 2.8 Credit enhancement 16 The Lehman Brothers Asset-Backed Securities Index … trailer in a whole business securitisation will not normally qualify as a securitisation company as the assets it holds will not be financial assets. X$D4H6. rather than backed by “assets” (accounts receivables, leases receivables, etc. More adaptations of the whole business securitization structure will certainly follow as the pace of international securitization increases and as originators in securitizable industries or sectors come to recognize the need to finance their businesses through the capital markets to ensure they are not at a competitive disadvantage. One of the latest innovations within the securitization field is whole business securitization. Credit enhancement is usually provided by the seller, rather than a third party, and usually through reserves of assets rather than direct recourse. UK Mitchells & Butlers became the first major stock exchange listed-company in the UK to go down the whole-business securitisation 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. 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. Outline of Whole Business Securitization 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.) Legal issues to be considered include compliance with securities laws and laws governing conduct of investment activities. If the marketable securities are to be offered to the public, then terms and conventions commonly used in the market must apply, including the need for the securities to be rated. Other methods of asset transfer used in the UK in the context of securitizations include using participations and, increasingly, declarations of trust. Certainly floating charge assets should not primarily be relied upon to generate funds to pay investors. 0000001706 00000 n Such investors rely on rating agencies to do this for them. The illiquid asset pool will also usually provide security for the debt service obligations of the marketable securities. Abstract One of the latest innovations within the securitization field is whole business securitization. Standard & Poor’s says: “The balance of control in administration is weighted against the secured creditor. To grant the loan, the SPV uses proceeds of bonds issued into the capital markets where- by the company grants security over most of its assets in favour of the bondholders. ServiceMaster proposes first-time $725 million whole-biz securitization The debut issue from its initial master-trust offering will repay a bridge loan taken out by Roark Capital for its October 2020 acquisition the commercial and residential restoration and cleaning franchisor. The rating agencies do so after focusing on the quality of the pooled assets and key factors such as asset isolation and credit and liquidity enhancement before ascribing a rating to a deal. An important example of this was the October 1999 issue by London City Airport of £100 million 7.886% senior secured notes due 2021 in order to finance its activities. The underlying assets are “transformed” into securities, hence the expression “securitization.” The holder of the security receives income from the products of the underlying assets, and this has given rise to the generic term ABS (Asset-Backed Securities).Note: All securities, of course, are backed by an ass… Overview. Securitization is the financial practice of pooling various types of contractual debt such as residential mortgages, commercial mortgages, auto loans or credit card debt obligations (or other non-debt assets which generate receivables) and selling their related cash flows to third party investors as securities, which may be described as bonds, pass-through securities, or collateralized debt obligations (CDOs). Whole Business Securitization 1. This article aims to provide a brief history of the Punch Taverns group, a summary of its whole-business securitisation structures and to describe the events … 0000061272 00000 n In the United States, too much recourse back to the seller and too little default risk being transferred to the buyer may undermine the assets being considered as transferred to the buyer with there being no resulting “true sale.” Under English law, legal form is more generally respected. This type of transfer has other legal consequences — for example, by virtue of s.136 Law of Property Act 1925, the purchasers under such an assignment cannot enforce the assigned debt directly against the debtor in legal proceedings without first joining the seller. (The bank debt market would only look at 3–5 years floating rate finance.). That doesn t mean securitisation doesn t work full stop. Under the Securitisation Regulation, originators, sponsors and original lenders will be under a new positive obligation to retain a five per cent net economic interest in securitisation transactions. But investors should be aware that deals aren t always legally watertight. 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. Almost all securitizations require credit “enhancement” to cover the risk of underlying obligors in the pool defaulting. 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 0000003537 00000 n Moreover, other perceived benefits arise over bank finance for issuers. <<1336C5F215EBBF4FBDBF3A1F2934E6BA>]>> Thus, the pooled assets must be low risk and the loss experience understood. In English “true sale” securitizations, for example, equitable assignments of assets are common under which written offers and oral acceptances typically effect a transfer so as to avoid local stamp duty. The receivables invariably continue to be administered or collected by the originator with little real disturbance to existing collection procedures. The objective of this paper is to identify current problems and propose legal and regulatory reforms to Colombia's securitisation framework that would enhance e ... To reach that, an analysis of the securitisation legal structure in the UK and in Colombia is done, focusing in the underlying secured transactions. xref To date, the whole business securitization technique has been mainly used as an important refinancing tool — primarily for acquisition financings. Another popular technique is for the seller to buy a junior tranche of marketable securities subordinate to the securities issued to the purchaser. Please upgrade your browser to improve your experience. 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. Also in the case of whole business securitizations, interest coverage ratios, debt-service-coverage ratios, debt-to-equity ratios and debt-to-earnings ratios are perceived to be more generous than in the case of bank-financed deals. 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. The Barchester Healthcare assets first appeared in the securitization market as Westminster Healthcare Finance, an early whole-business transaction that was redeemed in 2006. Whole business securitization is a transaction structure used in countries with creditor-friendly bankruptcy regimes more friendly than the United States's regime. Whole Business Securitization Introduction 1 Securitization vehicle, also called a special purpose vehicle, established only for the purpose of a specifi c securitization and legally diff erent and independent from the original owner of the assets. 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. This article explains the basic elements of a "standard securitisation", and examines the key legal and regulatory issues to consider when structuring a securitisation. 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. Peter is currently co-chairman of the accounting committee of the European Securitisation Forum. 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