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An introduction to securitisation in Ireland Back  
In the first of a two part series, Mark Thorne and Conor Houlihan write a primer on securitisation and examine current securitisation opportunities in Dublin.
While the term ‘securitisation’ can be used to cover a broad range of structured finance products, the net effect is generally the creation of tradable securities out of an income stream or projected future income stream, generated by financial assets. The following description provides a useful summary of the key characteristics of a securitisation transaction:
‘Securitisation is essentially the unbundling of risk and re-packaging of cashflows to fit investors preferences in respect of yield, maturity, liquidity and risk. It provides the originator of the assets with an effective financing method which allows it to strengthen its balance sheet and raise lower cost funding.’
Typically, a securitisation will involve the formation by an owner of receivables (the originator) of a special purpose vehicle (SPV) as a bankruptcy remote vehicle with the sole purpose being to purchase a bundle of assets from the originator. This purchase is usually financed through the issue of paper by the SPV in the capital markets.
One of the key aspects of any structure is the domicile of the SPV. The gradual development of an increasingly favourable fiscal regime offering tax neutral structuring and withholding tax exemptions coupled with ease of establishment and certainty of legal system means that Dublin is now capturing a significant share of the securitisation market. What follows is an introduction to the key legal aspects of securitising assets using an Irish SPV.

Establishment of SPV
Irish SPVs are established pursuant to the Companies Acts 1963 to 2001. Where it is intended to raise funds from the public, the SPV must be incorporated in the form of a public limited company. The shares are typically held by a charitable trust (or more recently by a purpose trust) to ensure bankruptcy remoteness from the originator. The Irish law provisions governing this area are substantially based on English common law and are therefore familiar to international arrangers.
The minimum capitalisation of an Irish SPV (which is a public company) is •38,100, one quarter of which must be paid up. There is no minimum capital requirement if a limited company is used, although on certain transactions where access to double taxation treaties is being sought, the tax advice may suggest the inclusion of a limited amount of capital.

Transfer of assets and true sale
One of the primary considerations at the outset of every transaction is the proper transfer of the assets from the originator to the SPV to ensure that all legal steps have been fully complied with in the jurisdiction in which the assets are based. Taxation and/or administrative difficulties may deter the completion or perfection of the transfer of a particular asset. On the other hand, certain jurisdictions have introduced legislation to facilitate transfers. For example, the filing of ABS plans under the Korean ABS law has proved to be of great assistance in a number of recent non-performing loan transactions. This is similar in effect to the Italian legislation on the transfer of mortgages in that many of the formalities and costs of transferring individual mortgages are removed.
Whether there is specific legislation governing the transfer or otherwise, a key element of the legal opinion for securitisation transactions will be a ‘true sale’ confirmation. This will confirm the actual transfer of title to the SPV and give comfort that any creditor of the originator will not have access to the assets transferred to the SPV in the event of the insolvency of the originator.

In terms of granting security, Ireland being a common law jurisdiction, allows very efficient structuring. The SPV acquires the assets and pays for them from the issuance of debt instruments. Irish law allows for a suitable charge to be taken over the assets acquired by the SPV. The existence of the security will be recorded with the Irish Companies Registration Office to maintain the priority of the security.

While SPVs are zero rated for tax purposes in Jersey and Cayman, in Ireland tax efficiency is achieved by ensuring that the funding charges and expenses are deductible. The same net result is thereby achieved. In addition, Dublin has an advantage over other jurisdictions in the availability and access to a wide network of double tax treaties. The combination of having an EU issuer and EU stock exchange listing can also be a major attraction to investors.

IFSC vs. non-IFSC
Irish SPVs are operated so as to fall within the definition of a ‘qualifying company’ under Section 110 Taxes Consolidation Act, 1997 (‘TCA 1997’). Such ‘qualifying companies’ are further categorised into (i) companies that have received a certificate under Section 446 TCA 1997 (‘IFSC SPVs’); and (ii) those that have not (‘non-IFSC SPVs’). IFSC SPVs are ascribed ‘deemed trading’ status and are taxed at a rate of 10p.c. on their profits. Tax computations for non-IFSC SPVs are completed using trading company principles although they do not obtain ‘deemed trading status’. Non IFSC SPVs are considered passive vehicles and are taxable at 25p.c. on their profits. The rate of tax applicable however is of little importance given that the amount of profit left in SPVs is typically very low.

Part II will be published in the next issue of Finance.

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