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More on Securitisation in Greece
Updated on 20th January, 2010
This page was revised by Nidhi Bothra
Securitization has been in the forefront for Greece and numbers have been suggestive that securitisation is emerging as an efficient and viable financing tool. Greece has been in the nascent stages of development of securitization and there are several issues like regulatory, legal, depth of the capital markets, sovereign issues that have an impact on the growth and development of securitization in a particular country.
Till 2001 there were very few securitization transactions that had taken place in Greece largely because Greek securitization laws facilitated government initiative. The Hellenic government would undertake payments in case there was any shortfall in the issuer funds and the amount outstanding to be paid to the investors at the time of maturity. The consumer borrowing mentality in Europe is quite different from that in US so while the banks in European countries were well funded and did not feel the need for securitizing there was modest growth and development of this market. With high levels of home ownership and low consumer indebtedness, consumer debt levels have been low in Greece as compared to the European counterparts but there have been some off hand transactions in Greece were securitizing future lottery ticket revenues.
Securitisation law L3156/2003 enacted, which set the framework for a true sale of assets to an SPV. The SPV would be a Greek company registered with shares. Under this law the SPV is to issue notes on private placement basis only, to not more than 150 persons. To give boost to the securitization market, the legislation also clearly states the formalities for a perfect assignment. The transfer contract of the receivables must be registered and a further notification to the debtors should be given with respect to this transfer. This meant that each mortgage need not be registered as the whole pool will be registered. The security interest associated with the receivables is also transferred to the SPV. As per article 976 of the Greek Civil Procedure Code the claim of such noteholders will rank ahead of any statutory preferential creditors.
Inspite of well set out framework for the SPVs, there were several issues that were not dealt with. The legislation did not provide a framework for trustees, as the securities were to be issued on private placement basis the securities did not have reach out to the capital markets and did not open doors for international investments.
Thereafter in 2007 laws relating to Covered Bonds were incorporated. Article 91 of Law 3601/2007 and Articles 1 to 9, 12 and 14 of Law 3156/ 2003 are applicable in case of issue of Covered Bonds. Apart from these the Bank of Greece Governor’s Act provides for the ratio of the assets consisting of the collateral to the value of the covered bond issued. The law states two ways of issuance of covered bonds, 1) direct issuance – where the originator would issue the covered bonds and the assets would be ring fenced on its balance sheet and 2) indirect issuance – where the assets would be transferred to an SPV which in turn would be the issuer of the bonds.
The collateral is legally pledged in favor of the bondholders and as the bondholders are secured lenders their claims would have priority over any claim mentioned in Article 975 of the Code of Civil Procedure. The document transferring the claims of the collateral, between the issuer and the trustee is to be registered as per Article 3 of law 2844/ 2000 (Government Gazette 220 A’). Bondholders’ assets are protected in clear terms against the insolvency of the issuer. Unlike in the case of the laws enacted in 2003 where the notes could be issued only on private placement basis, the covered bonds can be admitted to the regulated markets and are regulated by Article 2 of Law 2396/ 1996 and can also be introduced to the public. In case the issuer is an SPV, it can only do so with an unconditional guarantee from the credit institution. The 2007 legislation on the issue of covered bonds supersedes the general provisions of the Code of Civil Procedure and the Bankruptcy Code. Further amendments have been made to the legislations governing covered bonds Law 3693/ 2008 (Article 48) and Law 2746/ 2009 (Article 69)
The economic structure continues to remain rigid there has been a time lag in development activities in Greece as compared to the European counterparts
THE NEW GREEK PRIVATE SECTOR SECURITISATION REGIME
1. Following the public sector securitisation law 2801/2000, the Government of the Hellenic Republic recently enacted a specific legislation in relation to securitisations of both receivables and real estate in Greece for non-government originators. The new securitisation law 3156/2003 (published in Government Gazette issue n°. 157/A/25.06.03) provides a clear cut legal framework with respect to securitisation of trade receivables (Article 10) and real estate assets (Article 11) originated by a commercial entity or a credit institution resident in Greece (the Originator).
2. In particular, Article 10 of the securitisation law allows an Originator to sell its trade receivables to a special purpose company (SPC) established in Greece or abroad. Such an SPC must also issue, through private placement only, bonds in connection with the securitisation of such receivables. The sale of the receivables is to be governed by assignment provisions of Article 455 and seq. of the Greek Civil Code which provides that ancillary rights concerning the receivables, including guarantees, mortgages, mortgage pre-notations and other security interests, will be transferred by the Originator to the SPC along with the transfer of the receivables. Such transfer is considered as a "true sale" and is governed by sale provisions of Article 513 and seq. of the Greek Civil Code providing for full transfer of legal ownership.
3. The SPC is expressly allowed by the law to enter into, for securitisation or risk hedging purposes, any type of loan or credit agreement or any insurance or security contract, including derivative contracts.
4. In the case of trade receivables, a summary of the receivables sale agreement must be registered with the competent public registry (??e????f??a?e??), in accordance with the procedure provided for by Article 3 of the Greek law 2844/2000 (Government Gazette issue n°. A220 20001012) on registered pledge. Following such a registration the transfer of the receivables is effected and perfected. At the same time, the obligors of the receivables are deemed to have notice of the transfer of the receivables without any further notification.
5. Following the registration of the summary of the receivables sale agreement, the validity of the sale of the receivables is not affected by any insolvency proceedings in relation to the Originator or the SPC. In addition, no security interest or encumbrance can be created over the receivables other than the interest that is created pursuant to the securitisation law which comprises a pledge operating by law over the receivables in favour of the bondholders issued in connection with the securitisation of the receivables and also the other creditors of the SPC. Such a pledge rank ahead of the claims of any statutory preferential creditors.
6. The servicing in relation to the receivables can be carried out by: (i) the Originator; (ii) a credit institution or financial institution in the European Economic Area; or (iii) a third party that had guaranteed or serviced the receivables prior to the time of transfer to the SPC. However, where the SPC is not resident in Greece, the servicer must be "established" in Greece if the receivables are payable by Greek consumers.
7. The securitisation law contains also express provisions with respect to segregation principle and anti-commingling risk. In effect, all the proceeds of the collections made in respect of the receivables must immediately upon receipt be deposited by the servicer or any other person making such collections in a separate interest-bearing bank account held either with the servicer, provided that the latter is a credit institution, or with another credit institution or financial institution in the European Economic Area. All such amounts along with any security created over the receivables do not form part of the servicer's estate on its liquidation (or any other person's estate making such collections). Equally, they do not form part of the custodian's estate. As a consequence, they are not available to the creditors of the servicer or the custodian (or, as the case may be, any other person making such collections).
8. Amounts standing to the credit of the segregated bank account into which collections are deposited are also secured in favour of the holders of the bonds issued in connection with the securitisation of the receivables and the other creditors of the SPC by virtue of a pledge operating by law.
9. Article 11 of the new securitisation law enables the transfer of real estate located in Greece to an SPC which issues bonds in relation to the securitisation of such real estate. For the purposes of real estate securitisation, the SPC must be resident in Greece. Any income generated from the real estate being securitised is used to reimburse the bondholders. A summary of the real estate sale agreement must be registered with the competent public registry, in accordance with the procedure set forth under Article 3 of the Greek law 2844/00.
10. Finally, Article 14 of the new securitisation law 3156/2003 deals with the tax treatment of securitisation transactions. In effect, the law provides, inter alias, that issues of bonds for the purposes of securitisation of assets or real estate and capital payments made in relation to these bonds or out of the securitised receivables are exempted from any, direct or indirect, taxation. Likewise, the transfer of receivables to and from the SCP, the servicing and making collections in relation to such receivables, and any credit facility or derivative agreements entered into for the shake of a securitisation transaction are equally exempted from any direct or indirect tax obligation, stamp duty, contribution or any other charge in favour of the Treasury. Any gains arising out of the transfer of receivables to the SPC along with the entering into any credit facility or derivative contract are exempted for income tax purposes.
On the contrary, withholding tax could be charged on interest payments made by Greek debtors to a foreign SPC, unless otherwise provided for by a double tax treaty.
11. Following the enactment of the new securitisation law in Greece, the first private sector RMBS transaction which raised approximately €250m, was carried out in November 2003 by Aspis Bank, a mortgage-lending specialist established in 1992. More recently, EFG Eurobank Ergasias (the third-largest bank in Greece in terms of deposits) set up a €750m residential mortgage securitisation programme on the basis of the new legal framework.
Dimitrios Logizidis, Gide Loyrette Nouel (Paris) [LOGIZIDIS@gide.com]