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Securitisation: a great year for the industry Back  
Peter Walker says that 2003 was a great year for the industry, but that to achieve further growth in 2004 the industry needs to continue to maintain close relationships with the Government, Revenue Commissioners, arrangers, structurers and investors.The more important success stories included the changes introduced by the Finance Act, the first issues under Ireland's pfandbrief legislation, the launch of Air France�s Frans 2003 securitisation and the first collateralised debt obligation (CDO) transactions using an Irish SPV.
AA lot done more to do, sums up the year for Ireland's securitisation industry. Notable success stories were tempered by the fact that some of the hoped for transactions did not materialise. The more important success stories included the changes introduced by the Finance Act, the first issues under Ireland�s pfandbrief legislation, the launch of Air France's Frans 2003 securitisation and the first collateralised debt obligation (CDO) transactions using an Irish special purpose vehicle (SPV). On the flip side, there was not the increase of classes of domestic assets being securitised, whole business securitisations still appears to be a bridge too far and the fast pace of the development in the industry continues to put pressure on our legislative framework.

One of the most positive moves in 2003 was the introduction by the Finance Act, 2003 of improvements to the original securitisation tax legislation1. These much sought after changes immediately facilitated many more transactions throughout the year. The changes introduced removed the need for some of the structuring which had previously been necessary in Ireland when using Irish SPVs. In particular it allowed Irish SPVs to issue CDOs. CDOs are becoming an increasingly popular form of structured investments because the combination of, inter alia, active asset management and a diverse range of underlying assets make them very appealing to institutional and individual investors alike. The ability to do them through Irish SPVs will help maintain Ireland as a popular jurisdiction in which to locate issuing SPVs

To maintain Ireland�s competitiveness in the European marketplace it is important that our legislative framework continues to keep pace with the industry. Some example of changes which could certainly help ensure this are: (i) expanding the quoted Eurobond exemption to registered paper to assist in the easier sale of notes to US investors (as was done in the UK several years ago), (ii) expanding the definition of qualifying assets to enable the full range of CDOs and other securitisation e.g. CFOs and (iii) clarifying the VAT position of Section 110 companies.

Central to the success of the Irish securitisation industry is the presence in Ireland of active structured product investors, arrangers and structurers. In 2003 Dublin copperfastened itself now appears firmly on the map of most European road shows. This is evidence the strength and depth of the investor base, particularly in the IFSC.

In addition to the investors there are now a growing number of specialist investment managers based in Ireland. The Irish based collateral manages active in 2003 include AIB Capital Markets plc, Scotiabank (Ireland) Limited, Zais Group Investment Advisors Limited, Avoca Capital, TD Global Finance and Harbourmaster Capital Management Limited all of. In addition, 2003 saw the introduction of at least one new Irish investment manager, Bank of Ireland International Finance who successfully launched the first collateralised loan transaction using an Irish SPV.

The growth of business has seen a growth in the number of service providers in the Irish market.

Many existing service providers have been expanding while there have also been new entrants into the market. The range of services being provided in Dublin includes legal, tax, auditing, administration, paying agents, registrars and listing agents to name but a few. The year has seen increased competition in all of these areas.

2003 did not see any real increase in the depth of asset classes that were being securitised by Irish originators. First Active PLC and the Educational Building Society continued to securitise their residential mortgages. It remains to be seen whether the acquisition of First Active PLC will make any change to its securitisation business. Despite the continued strength of the commercial property sector in Ireland few Irish originators have taken the plunge and securitised any of their Irish portfolio. Hopefully this will change in 2004. It was hoped in 2003 that there would be an increased awareness and interest in securitising other classes of assets e.g. car loan receivables, this has not materialised.

2003 was a bumper year for the Irish securitisation industry as a whole. The chart indicates that the Irish Stock Exchange Limited has continued to grow its ABS business. Many of the world�s largest merchant banks including Goldman Sachs, Merrill Lynch, Lehman Brothers and Deutsche Bank continue to choose Ireland as an on-shore jurisdiction for their repackaging programmes. Other merchant banks have followed suit and Citigroup, Dresdner Bank AG, HSBC and Barclays Bank PLC are just a few who also now set up Irish repackaging vehicle.

2003 also heralded the long awaited issue by DEPFA and West LB of covered asset bonds using the new Irish covered assets legislation. These issuances have arisen on the back of a massive joint effort by industry and the legislature and will hopefully produce a stable and popular financing tool for the originating banks. These issuances are doubly important in that they reflect the continued faith being put in the IFSC by major international financing institutions.

Another landmark deal was Frans 2003 securitisation under which Air France securitised 16 aircraft from its fleet using Irish SPVs. This was a large and complex transaction which overcame a number of hurdles, most notable the tax and insolvency issues in using 18 Irish SPVs to hold the aircraft and another SPV to issue the notes. This transaction was successfully launched in a very competitive market and at a time when aircraft securitisations were not popular. The ability of the structure to overcome complicated tax and insolvency issues indicated to the markets that Irish SPVs can be used for some of the most complicated rated true sale securitisations.

Towards the end of the year, Bank of Ireland International Finance successfully launched the first CDO using an Irish SPV. The transaction was a collateralised loan obligation which securitised certain senior and mezzanine facilities which had been originated by Bank of Ireland International Finance (BOIIF). BOIIF is also the collateral manager and it is hoped that Partholon CDO I plc will be the first of a number of similar CDO transactions. This first CDO using an Irish SPV was quickly followed by a further Irish SPV CDO, Aquila CLO I plc. Prior to the enactment of the Finance Act earlier in the year, the European market was very reluctant to use Irish SPVs for CDO transactions with the result that most European CDOs were issued out of either Jersey or Netherlands. The enactment of the Finance Act provided the impetus to persuade arrangers that Irish SPVs could be used for these transactions. Although some more work may be necessary to remove all of the remaining obstacles to further types of CDO transactions, it is now clear that Irish SPVs can be used.

One notable absence from the transactions that were carried out in Ireland in 2003 was a �whole business� securitisation. Although it has remained a viable alternative in the UK, it appears that there are still some hurdles to overcome in Ireland.

2003 was a very successful year for the securitisation industry in Ireland. It saw continued growth in the breadth and depth of structured finance transactions, which had a connection with Ireland. To achieve further growth and recognition for the industry, it is imperative that that we continue to liase with the Government, the Revenue Commissioners and the arrangers, structurers and investors to ensure we continue to hold a competitive advantage over other EU jurisdictions.

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