| Continued securitisation development boosts business for service providers |
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| As the global securitisation market continues to grow, the number of servicers targeting it is also rising, as service providers expand their range of offerings, ABS jurisdictions strive to improve their operating environment, and exchanges accept increasingly complex structures. |
In Europe, the market is set to grow by more than 16 per cent over the coming year, with issuance expected to top half a trillion for the first time. According to a survey by the European Securitisation Forum, growth will be driven by favorable macroeconomic conditions of strong growth and employment trends, additional products and investors in the marketplace and ample market liquidity, combined with moderately rising interest rates.
The highest volume sectors in 2007 are projected to be residential mortgage backed securitisation (RMBS), commercial mortgage backed securitisation (CMBS) and collateralised debt obligations (CDOs), as they were in 2006. Volume growth, however, will be broad based with growth forecasted for most asset classes. In addition to funded issuance growth, the ESF survey expects synthetic issuance to also grow at about a 30 per cent pace.
CDOs, particularly CLOs (collateralised loan obligations) and CRE (commercial real estate) CDOs, and CMBS, as well as consumer asset-backed securities (ABS), are expected to be the leading growth sectors in 2007.
Global ABS listings
The jurisdictions featured in this year's edition include: Bermuda, British Virgin Islands, The Cayman Islands, The Channel Islands, Dublin, Dubai, Gibraltar, Luxembourg, The Netherlands.
The Irish Stock Exchange began listing specialist debt securities, such as asset backed securities back in 1999, and today, it has become the dominant player in Europe in the listing of specialist debt. The exchange now employs 24 people in this division.
On page 11, Gerard Scully, head of debt listing on the exchange, writes that the debt listing function enjoyed another successful year of growth in 2006, with a 49 per cent increase in the number of securities listed over the previous year with a total of 2,595 securities approved for listing. This built upon 2005 which also saw a 49 per cent rise in the number of debt listings over the previous year, increasing from 1170 to 1745. Steady progress has been maintained in the early months of 2007, and the debt listing function seems on course for another record breaking year.
The CISX began operations in October 1998 and has seen dramatic growth in the number of securities listed during the last 18 months. Writing on page 15 of this issue, Alasdair Hunter, managing associate with Ogier, writes that for arrangers and issuers who require a listing on a recognised stock exchange but wish to minimise the amount of cost and time spent in listing, the CISX is an attractive alternative.
The Luxembourg Stock Exchange was the first exchange in the world to list a eurobond, the Autostrade issue in 1963, and continues to attract such business.
On January 18th 2006, the emerging Dubai Stock Exchange (DIFX) listed its first debt security from the National Bank of Dubai, having opened in September 2005. Islamic bonds are popular on the exchange, and a trend is emerging for sukuk issuers to choose the DIFX as their listing venue - the DIFX has a bigger listed value of sukuk than any other exchange in the world
SPV domiciliation - the global jurisdictions
There are a number of global jurisdictions which now compete for the domiciliation of SPVs.
In Europe, Ireland is the dominant player, and it is the largest domicile for domiciliation of special purpose companies (SPVs) in the EU, and has seen massive growth in CDO/ CLO issuances and repackaging programmes, in particular.
Over the past year, the enactment of the Investment Funds, Companies and Miscellaneous Provisions Act 2006 on December 24th, 2006, was a welcome boost to the sector, as the Act enabled Irish SPVs involved in the issuing of debt securities to be set up as private companies.
The past year saw an increase in the volume of US deals using Ireland to incorporate their securitisation vehicle, according to Matheson Ormsby Prentice. Previously, such deals were almost exclusively structured through the Cayman Islands, but an increased desire to structure such deals onshore, combined with an increased appetite to market such deals to European investors, means that more and more, Ireland is being seen as the natural choice.
Another European jurisdiction is The Netherlands. This jurisdiction has long been associated with securitisation, and is the third largest country in Europe with respect to origination, behind the UK and Spain. Practically all cash flows arising from all sorts of asset can be securitised in the Netherlands. The Netherlands is a popular destination for SPV domiciliation for a number of reasons, including: its attractive tax regime - the tax burden for SPVs is negligible as there is generally no withholding tax on interest payments by an SPV on debt instruments, and there is an extensive treaty network; its legal infrastructure; favorable banking regulations, securities laws and bankruptcy laws.
Also in Europe is Luxembourg. In 2004, Luxembourg introduced a new securitisation law, which has opened up opportunities for the sector in the Grand Duchy. In an article on page 13 of this supplement, Luxembourg tax, trust and accountancy specialists Fidomes S?rl, say that two types of securitisation vehicles are offered by the Luxembourg market - a securisation company or a securitisation fund. The centre is also attractive from a tax perspective.
Gibraltar, the British Overseas Territory located at the southern tip of the Iberian peninsula, is also trying to attract more securitisation business. Deutsche Bank and UBS became the first investment banks to use Gibraltar as a special purpose vehicle (SPV) domicile. In addition, Gibraltar hopes to open its own stock exchange for the listing of funds and specialist debt vehicles.
The Channel Islands has positioned itself as an alternative to the EU jurisdictions, as both Jersey and Guernsey are UK Crown Dependencies, and are therefore not subject to the majority of EU Directives and are, in particular, not covered by EU measures aimed at fiscal and regulatory harmonisation.
Jersey has developed a particular reputation for debt securities issues and securitisation, and it offers no capital gains tax and no duty upon the issue of either shares or debt securities.
Amongst the Caribbean islands, the Cayman Islands is the dominant player, as it established an undisputed lead in this business in the early 1980s, and is particularly attractive to US based deals. Bermuda however, also positions itself for this business, although with a stricter regulatory regime than that of its neighbour the Cayman Islands, it remains in its shadow as a SPV domicile.
Further afield, the British Virgin Islands (BVI), is also a player in the SPV market, as SPVs can generally be incorporated within 24 hours. As in other jurisdictions, the BVI are attractive from a tax perspective, and offer a regime where there is no income, withholding or other taxes, or stamp or other duties.
Corporate services
As the growth of securitisation continues, the role of third party servicers is becoming increasingly important. In order to incorporate the SPV, a minimum of two directors, a company secretary and a registered office are required. On page 4, Anne Flood, a senior manager in AIB International Financial Services Ltd, writes that a corporate services provider, or a corporate administrator, can provide such services.
Also important are third party servicers for residential mortgage-backed securitisation (RMBS) issuers. The servicer, can be in-house or outsourced, but either way, the servicer performs a number of key functions, writes Paul Fenn on page 3, including customer servicing, cash collection, arrears recovery, quality control, compliance and timely and accurate reporting.
Outsourced service providers are attractive writes Fenn, as, 'the lender benefits from a level of knowledge, expertise and flexibility from the servicer that would be hard to replicate in-house. In a start-up situation, they facilitate speed to market more quickly and at lower cost'.
Investment
2007 is proving to be another challenging year for investors as credit spreads on securitised products remain at historically light levels. Writing on page 8, Dermot Hardy, head of treasury at Aareal Bank AG, Dublin Branch, says, 'We are currently faced with the twin prospects of low returns at a time of increased volatility in the underlying markets'. However, he maintains that the European market remains fundamentally sound and the structural protections embedded in securitisation transactions means that the bond ratings should be stable. |
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