Introduction and relevant Articles

The SECR refers in various places, including Articles 20 (1) and 24 (1) and Recital 22, to the involvement of a securitisation special purpose entity (“SSPE”, defined in Article 2, Point (2) of the Securitisation Regulation as “a corporation, trust or other entity, other than an originator or sponsor, established for the purpose of carrying out one or more securitisations, the activities of which are limited to those appropriate to accomplishing that objective, the structure of which is intended to isolate the obligations of the SSPE from those of the originator”) in an STS traditional securitisation (defined in Article 2, Point (9) of the SECR as „a securitisation involving the transfer of the economic interest in the exposures being securitised through the transfer of ownership of those exposures from the originator to an SSPE or through sub-participation by an SSPE [..]“).

We note that, for STS synthetic on-balance-sheet securitisations according to Section 2a of the SECR, the question of the mandatory involvement of an SSPE is not relevant as the SECR does not refer to the involvement of an SSPE for this transaction type. This is reflected by the fact that in two of the main structure types used for STS synthetic on-balance-sheet securitisations, namely (i) the conclusion of a credit protection agreement between the originator and a qualifying investor in unfunded structures (see Article 26e (8) (a) and (b) of the SECR), and (ii) the issuance of credit linked notes directly by the originator (see Article 26e (10) 5th Subparagraph of the SECR), no SSPE is involved.

While the involvement of an SSPE represents the “textbook” structure of most public and private traditional securitisations, there are securitisation structures that do not make use of an SSPE but effect the transfer of underlying exposures from the originator/original lender directly to the balance sheet of a – typically – bank investor which either (i) uses its own funding or (ii) obtains funding from an ABCP programme sponsored by such bank institution. In the case of (ii), such structure would represent an ABCP transaction (see Article 24 of the SECR regarding the transaction-level STS requirements), while in the case of (i) a Non-ABCP securitisation would apply (see Articles 20-22 of the SECR). Please note that in some of these structures the purchasing bank acts as “originator” according to Article 2, Point (3), limb (b) of the SECR, which “purchases a third party’s exposures on its own account and then securitises them”.

The main reasons for using this transaction structure (in the following referred to as “non-SSPE traditional securitisation structure”) are:

1. The usage of a (bank) balance sheet instead of a thinly capitalised SSPE as purchaser provides the transaction with the purchaser’s substance required for the purposes of achieving the desired accounting treatment from the perspective of the originator (i.e. achieving a true sale from an accounting perspective);
2. There are no additional costs for the establishment and management of an SSPE;
3. Some originators do not wish an SSPE as their counterparty;
4. Bank purchasers wish to manage the exposures directly rather than through an SSPE, thereby having full control on the cashflows from the underlying exposures and even further increased transparency as the ongoing communication and information (transaction reporting) takes place directly between the originator/original lender and the bank purchaser.

Typical asset classes securitised using a non-SSPE traditional securitisation structure are trade receivables, buy now-pay later loans and consumer loans, but could be equally used to fund other asset classes such as auto loans & leases, equipment leases, credit cards and others.

It is obvious that this structure can only be used in circumstances where there is only one private investor; for private or public securitisations involving multiple investors the involvement of an SSPE is common as it facilitates the bundling of the securitised exposures at the level of the SSPE and the issuance by the SSPE of tranches in the form of bearer securities (bonds) subscribed by multiple investors.

It should be noted that all non-SSPE traditional securitisation structures that aim to achieve STS compliance must, as a pre-condition, represent a “securitisation” as defined in Article 2, Point (1) of the SECR. This is typically achieved by (i) the credit risk associated with an exposure or a pool of exposures being tranched through a credit risk reserve structured as a purchase price discount (and representing a “tranche” as defined in Article 2, Point (6) of the SECR), (ii) payments in the transaction or scheme being dependent upon the performance of the exposure or of the pool of exposures, (iii) the subordination of tranches determining the distribution of losses during the ongoing life of the transaction or scheme and (iv) the transaction or scheme not creating exposures which possess all of the characteristics listed in Article 147(8) of Regulation (EU) No 575/2013. It is important to bear in mind that the above-mentioned definition of a “securitisation” does not refer in any way to the requirement to involve an “SSPE” in a securitisation. Furthermore, such non-SSPE traditional securitisation structures fulfil all relevant general requirements stipulated by the SECR for all securitisations, including the requirements for risk retention (Article 6 of the SECR) and transparency (Article 7 of the SECR).

Compliance with the requirements for “simple, transparent and standardised” (STS) Non-ABCP and ABCP securitisations

Regarding compliance with the “simple, transparent and standardised” (STS) criteria, securitisations using a non-SSPE traditional securitisation structure can achieve, from a substance perspective, STS compliance in the same way as securitisations involving an SSPE can do. This is the case because:

• In a non-SSPE traditional securitisation structure, title to the underlying exposures is acquired by the (bank) purchaser by means of a true sale or assignment or transfer with the same legal effect in a manner that is enforceable against the seller or any other third party. The transfer of title to the (bank) purchaser is not subject to severe clawback provisions in the event of the seller’s insolvency. This is confirmed by an appropriate true sale legal opinion by a qualified external legal counsel. Thus, in a non-SSPE traditional securitisation involving a single investor, the isolation of the obligations from the originator/original lender is still ensured by typical provisions protecting the true sale while the insolvency remoteness of the purchasing entity (e.g. acquiring bank) is not relevant in this specific situation because there are no other external investors.
• All other STS criteria are met.

Therefore, non-SSPE traditional securitisation structures provide the (bank) purchaser also in case of an insolvency of the originator/seller with full recourse to the purchased exposures and any collections received from the respective obligors. The (bank) purchaser’s recourse is even stronger compared to an SSPE structure given that the (bank) purchaser directly owns the purchased exposures on its balance sheet and does not carry any risks from, e.g., cash being trapped in the SSPE that is not available for the orderly repayment of the investor(s), the SSPE entering into insolvency (please note that, while SSPEs are structured as ‚bankruptcy-remote‘ vehicles, this does not fully eliminate the possibility of an insolvency at the level of the SSPE) or any trustee that may be involved to hold the securitised exposures for security purposed not fulfilling its contractual obligations. Hence, it could be argued that non-SSPE traditional securitisation structures are even “simpler” than structures involving an SSPE.

From the perspective of the originator/seller – although this perspective is not part of the true sale requirements under Articles 20 (1) and 24 (1) of the SECR - there is no increased insolvency risk on the purchasing bank (compared to a bankruptcy-remote SSPE) as the originator/seller receives the purchase price for the sold receivables immediately upon transfer of the receivables and has a refund claim against the purchasing bank on a full-recourse basis on any refundable credit risk reserve.

Conclusion

Securitisations involving a non-SSPE traditional securitisation structure that do not involve an SSPE represent a comparatively small share of the private securitisation market. Nevertheless, they provide important funding for the real economy that would otherwise not be available or only available to the respective originators through other funding instruments that do not offer the same benefits that a securitisation with a non-SSPE traditional securitisation structure can provide.

As explained above, non-SSPE traditional securitisations comply, from a substance perspective, with all requirements of simple, transparent and standardised securitisations.

While it can be argued that the SECR has been drafted to capture the commonly used textbook securitisation structures involving an SSPE (and therefore references to SSPE have been added accordingly) and cannot cater for less common structures such as non-SSPE traditional securitisations, this should not prevent such securitisations that otherwise fully comply with the STS requirements from being eligible for STS as such exclusion would (i) limit the scope of potential STS securitisations for purely formalistic reasons, and (ii) negatively impact the attractiveness of the EU securitisation market as a whole.

At the same time, it would not be consistent that both synthetic on-balance-sheet securitisations involving an SSPE and synthetic on-balance-sheet securitisations not involving an SSPE can achieve STS compliance, allowing issuers to choose the appropriate structure involving or not involving an SSPE, whereas STS traditional securitisations should only be limited to traditional securitisations involving an SSPE.

The fact that (i) the definition of “securitisation” does not refer to an “SSPE” and (ii) the STS criteria do not include a specific criterion that formulates the requirement for the involvement of an SSPE in STS securitisation implies that non-SSPE traditional securitisations cannot be excluded from the STS segment. The mere fact that the SECR mentions in various places, in particular in Articles 20 (1) and 24 (1), the term “SSPE” should not imply that each and every STS securitisation must also involve an SSPE – please note that e.g. Article 18 of the SECR refers in both subparagraph 1 and 2 (“The originator, sponsor and SSPE involved in a securitisation considered STS shall be established in the Union.”) to a “sponsor” which may or may not be party to an STS traditional securitisation, without harming the STS compliance of such a transaction – the same approach should apply also to the involvement or not of an “SSPE”.

Note: In order to provide practical examples of the compliance of securitisations involving a non-SSPE traditional securitisation structure, SVI is available to provide to regulators copies of the relevant STS verification reports.