58 3 Reduction of External Funding Needs
assigned as security, sold to individual financiers, or held by the firm to generate a
flow of income, is repackaged into tradeable securities issued to investors. The
identity of the investors may change over the life of the securities.^140
Securitisation is not limited to debts. Almost any types of assets can be
securitised, provided that the assets produce an income stream and the cash flow
can be determined in advance (loans, commitments, asset-backed and mortgage-
backed securities, corporate bonds, equity securities, private equity investments,
and so forth).^141 For example, the best-known copyright securitisation deal is the
issue in 1997 of USD 55 million worth of bonds supported by the future sales of
music by David Bowie, a British rock star (“Bowie Bonds”).
According to the ECB, the size of the euro-denominated securitisation market had a global
outstanding volume of €0.8 trillion as at the end of 2006. The overall US securitisation
market (defined as the securitisation market with an originator located in the US) was much
larger than the European one and stood roughly at USD 8.6 trillion (€6.5 trillion
equivalent).^142
Structure. Securitisation rests on a complex legal foundation. The main parties to a
securitisation transaction are the originator, the special purpose vehicle (SPV), the
security trustee, the administrator, and investors.
A standard securitisation transaction will involve the sale of receivables (the
asset pool) by the owner (the originator) to a purchaser, often a specially
incorporated company or a specially established trust (the SPV). The SPV is
structured (a) so that it will not be affected should the originator become insolvent
(bankruptcy remoteness) and (b) so that the assets will be derecognised (see
section 3.3.2 above). The SPV will fund the purchase through the issue of debt
securities. The securities are backed by the asset pool in two ways: (a) their
interest and principal payments are closely linked to the interest and principal
received on the pool of assets; and (b) they are secured on the receivables by
virtue of a security interest granted to an intermediary, often a security trustee
which acts for the investors in the debt securities.^143 As a result of securitisation:
- the originator obtains money from the transfer of the assets to the SPV;
- the SPV holds the assets and uses the income from the assets to fund its own
borrowing; - the borrowings of the SPV will be secured on the assets and therefore will carry
a lower rate of interest than unsecured borrowings;
(^140) The Law Commission, Registration of Security Interests, paragraph 6.30.
(^141) Paragraph 542 of the Basel II Accord. Kroll MJ, Bürgi JA, Sauter UC, Securitisation in
der Schweiz, IFF Forum für Steuerrecht 2002 p 252: “Als möglichen Aktiven kommen
praktisch alle denkbaren Finanzaktiven in Betracht. So wurden in der Schweiz bisher
unter anderem folgende Aktiven verbrieft: Handelsforderungen, Leasingforderungen,
Hypothekarkredite, Warenlager, Forderungen aus Sport-Vermarktungsverträgen,
Settlement-Risiken, Forderungen aus der Benutzung von Warenhauskreditkarten etc.”
(^142) ECB, The euro bonds and derivatives markets (June 2007) p 25.
(^143) The Law Commission, Registration of Security Interests, paragraph 6.31.