Archive for month: November, 2013

November 30, 2013

The market for asset-backed securities, which went into hibernation post the 2007-8 crisis, seems to be coming back to life. Hong Kong and Singapore and the two main centers of financial activity : most of investment banks in both the places had shut their stops and disbanded their investment banking teams post the sub-prime crisis. However, there are clear signs of activity resurfacing in both the places.

As regards Singapore – there have been 2 deals towards October-November.

One is a CMBS deal with pre-sales of properties under construction. This type of transaction has been done in Singapore long time back and was not seen over more than 6-7 years in the past. This deal, brought by T G Master, pertains to sale of spaces in Skies Miltonia, a property in Singapore. The progress payments on the property have been securitised, thus providing construction finance. This deal was structured and sold by DBS Singapore.

Another deal, brought by Courts Asia, uses two distinct SPVs – one in Malaysia and one in Singapore – to structure a multi-currency multi-jurisdiction transaction.

Hong Kong teams also seem busy structuring transactions for China.

Down South, Macquarie Leasing’s SMART template continues to have new issuances – this pertains to a portfolio of financial and operating leases.

In short, the Asian securitisation market has shown signs of clear revival in 2013, and 2014 may be holding the portents for a promising start.

Reported by: Vinod Kothari

November 29, 2013

The Central Bank of Ireland has recently clarified that:

• securitisation companies that have registered with the Central Bank as “financial vehicle corporations” pursuant to Regulation (EC) No 24/2009 of the European Central Bank[1] (the “FVC Regulation“); and / or
• securitisation companies funded by way of debt or other non-equity instruments,

are outside the scope of the Alternative Investment Fund Managers Directive (Directive 2011/61/EU)[2] (the AIFMD) and the Commission Delegated Regulation[3] (EU) No 231/2013 as transposed into Irish law under the European Union (Alternative Investment Fund Managers) Regulations, 2013 (the “AIFM Regulations“).Consequently they do not need to seek authorization as, or appoint, an AIFM. The Central Bank of Ireland does not intend to do that at least for so long as ESMA continues its current work on this matter.

Section 110 of the Irish Taxes Consolidation Act 1997[4] creates the legislative framework for securitisation companies in Ireland. Such companies are commonly called “Section 110” companies. Many existing and newly established section 110 companies would be required by the FVC Regulation to register with the Central Bank as “financial vehicle corporations”, by virtue of the fact that they carry out, or intend to carry out, one or more “securitizations” (within the meaning of the FVC Regulation). Following the clarifications, it is now clear that AIFMD and the AIFM Regulations do not apply to such companies.

AIFMD and the AIFM Regulations also do not apply to section 110 companies that are not required to register as FVCs, provided they are not engaged in the activity of issuing shares or units. This would include, section 110 companies that are not FVCs, where they are funded by entering into loans, issuing debt securities, and / or issuing non-debt instruments (such as certificates, warrants and derivative instruments) that do not convert into, and are not convertible into, shares or units giving an ownership interest in the company.

November 29, 2013

The latest issue of Financial Stability Report[1], released by the Bank of England, speaks  a lot once again by the needed initiatives to revive securitisation.

It notes, of course, that there are visible signs of positive investor interest in the sector in the recent past, evidenced by several proxy measures. First, the volumes of CLOs has been around USD 75 to 80 billion this year, which is close to the pre-Crisis levels. Second, there have been innovative deals – such as residential rental securitisation, securitisation of peer to peer loans, etc. However, with all this, the reduction of securitisation volumes in Europe has been alarming – coming from $ 1.2 trillion in 2008 to $ 322 billion in 2012.

The Report notes: “Better functioning and safe and robust securitisation markets have the potential to diversify banks’ funding sources and create securities that are better tailored to the needs of non-bank investors, such as insurers and pension funds. Securitisation can also transfer risk outside the banking sector. For example, banks that have the expertise to originate loans may not always be best placed to bear the risk of those loans. In those circumstances, banks can free up capital for new lending by securitising loans and selling them to other investors. This process diversifies sources of finance available to the real economy and potentially increases its stability”[2].

The Committee notes the useful purpose served  by “shadow banking” – a term applied to paralller alternative non-banking financial system supplying money to the financial system.

“The provision of finance from outside the traditional bankingsystem can play an important role in the financial system and wider economy but it can also be a source of systemic risk”, notes the Report. The Committee will focus on mitigating these risks, rather than curbing shadow banking.

Vinod Kothari adds: The CLO/CDO volumes, for the first 10 months of this year, is reportedly about $ 68.5 billion, which compares with $ 39.4 billion for the same period in 2012. This is surely a substantial increase. However, considering that there has not been much pick up in traditional asset classes, the aggregate ABS/MBS issuance for 2013 may end up lower than that for 2012.