| The corporate services provider's role in securitisation transactions |
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By: Anne Flood, Anne Flood
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| The development of Ireland's role as a base for special purpose vehicles (SPVs), has also seen a sharp increase in the demand for corporate service providers (CSPs) writes Anne Flood. |
The growth of securitisation over the past number of years has been well documented and Ireland is now the location of choice for arrangers of structured finance transactions to domicile the notes-issuing special purpose vehicle (SPV). The variety and range of transactions that are structured using Irish SPVs is immense and, as a consequence, a well-established infrastructure now exists in Ireland to facilitate a wide spectrum of transactions from the straightforward mortgage-backed securitisation deal to the most complex and innovative structures involving diverse asset classes such as life insurance receivables, aircraft and engine leases and CDOs.
The depth of experience among local industry participants such as service providers, legal and tax advisers and auditors, in addition to the pro-business attitude of the Department of Finance and Revenue and the efficiency and professionalism of the Irish Stock Exchange have all served to propel Ireland onto the world stage of structured finance as a 'best in class' location to establish SPVs.
The SPV
There is a perception that the SPV, to some extent, is viewed a legalistic device established solely for the purpose of facilitating the issuance of debt securities to the capital markets. They are nevertheless real companies with their own separate legal identities and are subject to the laws and regulations of their country of domicile. In Ireland, the SPV can be incorporated either as a public limited company (Plc) or as a private limited company, the latter now being the more popular choice due to the change in Irish company law in December 2006. This legislation, in summary, permits private limited companies to issue debt securities where the securities are being offered only to 'qualified investors' (as defined in the Prospectus Directive), or being offered to less than 100 people (not including qualified investors), or being offered in minimum subscription amounts or minimum denominations of ?50,000. The advantages of establishing the SPV as a private limited company as opposed to a Plc are the minimal amount of share capital required to be issued (a private limited company can be capitalised with just ?1) and the faster establishment time - approximately five days to establish a private company, as opposed to two weeks for a Plc.
In order to incorporate the SPV, a minimum of two directors, a company secretary and a registered office are required. These are services provided by a corporate services provider (also commonly referred to as corporate administrator). The engagement of a corporate services provider (CSP) is necessary from the outset of the establishment of the SPV. The CSP must work closely with the law firm engaged to incorporate the SPV on behalf of the arranger to ensure a smooth and speedy incorporation process. As the majority of SPVs are established as 'orphaned' entities, the provision of share trustee and nominee shareholders is often a requirement and typically an additional service provided by the CSP.
Responsibilities of the CSP
The primary responsibilities of the CSP are:
• Provision of a registered office for the SPV
• Provision of company secretarial services to include:
1. Maintenance of the register of shareholders and register of directors and secretary for the SPV
2. The arranging of meetings of the board of directors and shareholders of the SPV, provision of facilities for meetings and keeping minutes
3. Preparation and submission of all statutory filings
4. Maintenance of books of account of the SPV in accordance with the provisions of the Irish Companies Acts
5. Preparation of management accounts on behalf of the SPV on a periodic basis as required
6. Preparation of annual accounts for audit purposes and arranging the annual audit with the auditors to the SPV
7. Arranging and submitting the annual tax return with the tax advisors to the SPV
8. Arranging for the opening of bank accounts of the SPV and settling any local expenses incurred by the SPV as required
9. To generally maintain close contact with the originator and arranger and all other agents appointed by the SPV
Demands
While the above duties of the CSP may appear, on first glance, relatively straight-forward, in order to provide a professional and competent service, a CSP must acquire a thorough understanding of the overall mechanics of the transaction, keep up to date with often-challenging regulatory, compliance and accounting standard changes and be in a position to manage the SPV over a number of years.
Long after the post deal-closing parties have wrapped up and the arranger has moved on to the next big deal, a CSP will need to be in place ensuring the smooth day-to-day running of the SPV. The CSP remains as the focal point of the SPV and must liaise with all the other agents appointed by the SPV and the originator to ensure the SPV doesn't fall foul of the regulatory authorities.
In this age of increasing regulatory demands, this is especially important, as SPVs who, for example, do not file their annual financial statements on time with the Companies Registration Office will face penalties including late filing charges. It is imperative to have a CSP who has a firm establishment in the country of domicile of the SPV and who is intimately familiar with local compliance requirements to ensure these regulatory demands are met.
AIB International Financial Services Ltd.
AIB International Financial Services Ltd. (AIBIFS), established in 1987 as a subsidiary of Ireland's largest financial institution, is one of the largest and most experienced CSPs in the Irish market. Indeed, AIBIFS commenced providing corporate administration services to SPVs in 1996, to the very first SPV established under the domestic 'Section 110' securitisation legislation when it was first introduced.
As a result of the increase in demand for the 'one-stop shop' service from arrangers, AIBIFS have also been providing a range of additional services to SPVs including paying agency, calculation agency and cash management services and co-ordinate the arrangement of account bank, share trustee and listing agency services through other companies within the AIB Group. The availability of a suite of services from a well-established services provider provides arrangers with a hassle-free option and minimises the amount of time an arranger will need to spend coordinating with multiple service providers.
Conclusion
There is no doubt that the phenomenal growth in SPVs in Ireland has led to increased competition in the corporate services market with many new entrants establishing in recent times. Increased competition can lead to downward pressure on prices but this often can be accompanied by a reduction in quality of service offered. When choosing a service provider for any structured finance transaction, from the most basic vanilla structure to the more complex, multi-jurisdictional transactions, a reliable CSP with a solid establishment and proven track-record will prove a cost-saver in the long-term. |
Anne Flood is a senior manager in AIB International Financial Services Ltd. and is head of its securitisation and asset finance SPV Unit.
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