ABS investors are usually institutional investors, such as pension funds, who lack the resources to evaluate ABS risks. ... the structure … 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. 0000002161 00000 n 0000003807 00000 n In some whole-business securitizations, it has been proposed that the manager be split off from the sponsor in a new bankruptcy-remote structure based on the theory that this effectively separates the parent’s bankruptcy risk from the servicing of the securitization transaction. Moreover, other perceived benefits arise over bank finance for issuers. Once isolated from the originator’s credit risk, such cash flows can be used to back securities issued in the capital markets — called “asset-backed securities” or “ABS” — having a higher rating than securities issued by the originator! In addition, first priority security interests must be granted over the assets of the operating company which should secure, in full, the principal and interest on the ABS. Abstract One of the latest innovations within the securitization field is whole business securitization. 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. But investors should be aware that deals aren t always legally watertight. whole-business securitization requires extensive legal and rating-agency structuring. In terms of the “control” issue, under English law, a first ranking fixed charge will largely be unaffected by liquidation. 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. Please upgrade your browser to improve your experience. “Credit enhancement” addresses the risk of nonpayment by obligors while “liquidity enhancement” addresses risk of payment at the wrong time. 0000003537 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). 828 0 obj <>stream Securitization provides a number of potential benefits over conventional bank finance. Such a technique allows to finance or refinance operating assets of the company. Private offerings, on the other hand, may contain customized or unusual terms. It is also becoming more familiar to regulators outside the United States. 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. 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.) 0000003203 00000 n in a whole business securitisation will not normally qualify as a securitisation company as the assets it holds will not be financial assets. Compliance with applicable accounting rules is necessary if off-balance sheet treatment is required. 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 New Structures: “Whole Business” Securitizations Of Project Cash Flows. 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. Such investors rely on rating agencies to do this for them. Before describing the particular structures employed in operating-asset or whole-business securitization, it is perhaps worthwhile for me to explain the terminology “whole-business securitization” and … 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 type of securitisation uses a secured loan structure (as opposed to a true sale structure). For example, Standard & Poor’s focuses on four key concerns. 0 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. 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 … Five specific startxref 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. Another issue is the nature of the asset pool to be securitized. Another issue is how best to effect credit and liquidity enhancement. 0000000656 00000 n Both were found to have big loopholes in the structure when they went wrong. and feasibility studies. Certainly floating charge assets should not primarily be relied upon to generate funds to pay investors. Capital markets financing is less expensive and more flexible than bank finance. A 20-year income stream may be financed by bonds having a 20-year term thereby avoiding risks of funding mismatches. Standard & Poor’s says: “The balance of control in administration is weighted against the secured creditor. 0000004457 00000 n “Whole business” securitizations offer a potential solution to the difficulty of structuring around underlying revenue streams arising from contracts that are not assignable or capable of being subject to fixed security and complex businesses that require active management and that generate revenues otherwise than from short-term receivables. First, it can be a cheaper and more flexible source of long-term financing, particularly for companies below investment grade. 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. Another popular technique is for the seller to buy a junior tranche of marketable securities subordinate to the securities issued to the purchaser. That doesn t mean securitisation doesn t work full stop. 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. Finally, there will probably be regulation specific to the industry of the originator that will have an effect on the transaction structure. 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. Both were found to have big loopholes in the structure when they went wrong. 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. 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). <<1336C5F215EBBF4FBDBF3A1F2934E6BA>]>> Thus, the pooled assets must be low risk and the loss experience understood. 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. Whole business securitization. Such a technique allows to finance or refinance operating assets of the company. The Lehman Brothers Asset-Backed Securities Index … 0000002822 00000 n The £572 million refinancing of the deal was again launched as a conduit CMBS opco/propco structure… Such transactions will increasingly be a feature of international securitizations, particularly in markets where creditor-friendly bankruptcy laws allow creditors, effectively via receivers, to assume control of underlying revenues on an on-going basis and manage the revenue pool of a business in order to extinguish capital markets indebtedness. As with other securities issues, asset-backed securities may take the form of an individual offering where all investors own, pro rata, incoming revenues from the securitized assets or a multi-tranche offering in which different classes or tranches of securities are issued carrying different rights to the asset pool. This enables the operating company to access a wider group of potential investors 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. @��L��:1/:;�h��@�)��YO'.t���$�4ii��k�f'6��*̩2��Z��!���/��f�+r '&����*i��޴t�6��;�n�9p����y%��؂�l~�tz�ܩpl�V�Ng�ab9�1�����W�]���� 1G��D*���k�1/o�o����9ag�XH��jWP.�ŭ��k�—�m]�.ɯ�.�R,�xH��V�V9������|2�o���J��x`Ftt�C��444--�c``RRJ� ��P �(`qq �ѓ�0 Its US$410m whole-business securitisation, called HONK 2015-1, is IFR’s US Structured Finance Issue of the Year because it threw open the doors to lower-cost, repeatable funding that previously was reserved only for the nation’s biggest fast-food restaurants. 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’. 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. Take two recent cases: Welcome Break and Marne et Champagne. 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. Other methods of asset transfer used in the UK in the context of securitizations include using participations and, increasingly, declarations of trust. Th e securitization vehicle has a diff erent governance structure than the originating fi rm. 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. Most of the growth in ABS issuance is now taking place outside the United States where ABS issuance increased by 71.2% in 1999 over 1998 levels to $47.3 billion. UK In order to rate a whole business securitization, rating agencies have adopted an approach that combines elements of a structured or securitization transaction and a corporate transaction. Whole Business Securitization 1. This article aims to provide a brief history of the Punch Taverns group, a summary of its whole-business securitisation structures and to describe the events … B�$ECC�z9l@+:�B$;b��`��6�9�@����"���.�{�F 0000002188 00000 n 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. 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. For more information related to these transactions, please refer to Fitch's UK Whole Business Securitisation Rating Criteria. This article explains the basic elements of a "standard securitisation", and examines the key legal and regulatory issues to consider when structuring a securitisation. Punch Taverns' successful restructuring of £2.2bn of whole-business securitisation debt (2015) 2 JIBFL 107. 0000003281 00000 n Th e intention of this article is to get the reader acquainted with the fi nancing terminology whole business se-curitization, by which the elements that make More recently, U.S. corporate securitization techniques started expanding to other businesses in which intangible assets such as … 1.4 The state of the EU securitization market 6 2. Whole business securitization is a transaction structure used in countries with creditor-friendly bankruptcy regimes more friendly than the United States's regime. He also has extensive experience of Master Trust Structures. Fourth, it enables assets to be matched with liabilities. rather than backed by “assets” (accounts receivables, leases receivables, etc. The 6,900-strong chain, part of New York-listed Yum Brands, is the latest restaurant franchise to tempt investors with a so-called whole-business securitisation. %PDF-1.6 %���� For such originators — and London City Airport was one of them — the use of “whole business” securitizations is more appropriate. In addition, observance of all legal formalities associated with any transfer of underlying assets must take place; otherwise, the assets may not vest in the purchaser. 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. ritized. Almost all securitizations require credit “enhancement” to cover the risk of underlying obligors in the pool defaulting. “Whole busi- ness” securitisation is essen- tially a secured loan granted by an SPV to the relevant compa- ny. At a minimum, rating agencies require floating charges to be included in the security package for a “whole business” securitization. x�b```� ��� �����8� ��� ��r� �zÙ��>�?���Xq:��ay������Ă.���#;z��V��7)�X|�c��D��).�6QS4+�8�j7�� i#���iyZ����. To date, the whole business securitization technique has been mainly used as an important refinancing tool — primarily for acquisition financings. 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. This was a major reason driving the London City Airport transaction where the term of the notes issued was far longer than that available in the bank debt market. 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