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Titulización de Activos

Monday, February 6, 2012

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Securitisation

Spanish Securitisation Legal Framework

Law 2/81, of March 25 and Royal Decree 685/82, of March 17: define Mortgage Participations (PH's) and Mortgage Backed Securities without references to its securitisation.

Law 19/1992 of July 7

First Law to treat Securitisation: Mortgage Participations (PH's) can be securitised through Mortgage Securitisation Funds.

Meanwhile, Mortgage Securitisation Fund Management Companies (Sociedades Gestoras de Fondos de Titulización Hipotecaria, "SGFTH") are created

Securitisation is extended beyond Mortgage Participations (PH's) to include other assets. Asset Securitisation Funds are created and the SGFTH are transformed into Asset Securitisation Fund Management Companies (Sociedades Gestoras de Fondos de Titulización, "SGFT").

Within this Law's legal framework:

OM1999, of May 28: Securitisation of loans granted to small and medium sized businesses (FTPYMES) is enabled. Possibility for the bonds to benefit from the Spanish State guarantee

FINANCIAL LAW 44/2002, of November 24: defines Mortgage Transfer Certificates (CTH's),

LAW 13/2003, of May 23 enables securitisation of concessions and public works.

OM EHA/3536/2005, of November 10: determines future credit rights that can be integrated to a Securitisation Fund and the necessary conditions for the transfer. It also qualifies the CNMV (Comission Nacional del Mercado de Valores) to rule and publish specific regulations on accounting matters and information diffusion about the Asset Securitisation Funds and its Asset Securitisation Fund Management Companies (sociedades Gestoras)

Funds by type

Mortgages Participations (PH's) and Mortgages Transfer Certificates (CTH's)

These Funds' collateral is constituted by Mortgages Participations (PH's) and Mortgages Transfer Certificates (CTH's) issued by the originators with the purpose of transferring to the Fund, loans backed by mortgages guarantee.

Mortgages Backed Securities (Fondos de Titulización Hipotecaria "FTH's"). These Funds' collateral is exclusively constituted by Mortgage Participations that meet the requirements established pursuant to second section, Law 2/1981, of March 25, that regulates the Spanish Mortgage Market. In accordance to these requirements, the non-matured nominal outstanding balance of each and all of the Mortgage Shares Certificates do not exceed 80% of the appraisal value of the mortgaged property backing to each Mortgage loan.
Asset Backed Securities (Fondos de Titulización de Activos "FTA's"). These Funds' collateral is constituted by Mortgages Participations (PH's) and Mortgages Transfer Certificates (CTH's). CTH´s represent loans that do not meet the requirements established pursuant to second section, Law 2/1981 of March 25, that regulates the Spanish Mortgage Market. The non-matured outstanding nominal balance of each and all of the CTH can exceed 80% of the appraisal value of the mortgaged property backing to each Mortgage loan or the CTH's can be composed of second or following rank mortgages

Small and Medium Bussines Funds (FTPYME's)

The asset of the Fund consists of credit rights derived from loans granted to non-financial Spanish Companies, in compilance with the European Commission concerning the definition of small and medium businesses. Credit rights can be derived from non-mortgage loans, loans wiht personal collateral or loans with real non-mortgage collateral and/or mortgage loans which will be assigned to the Fund by the issue of Mortgage Transfer Certificates. These securitisation transactions are promoted by the Spanish Government in order to improve the financing terms of the Spanish Small And Medium Sized Businesses (PYMES). A part of the issued bonds are backed by a Spanish Treasury guarantee, transfering a small part of the securitised portfolio's risk to the State and granting better issuing terms. As a counterpart of the State guarantee, the originators are committed to reinvest in new small and medium businesses financing, the liquidity obtained from the sale of the credit rights to the Fund

Spanish Mortgage Covered Bonds

These Fund’s collateral is constituted by Mortgage Covered Bonds issued by financial entities backed by their Mortgage Portfolio.The Fund acquires Mortgage Covered Bonds issued by several entities, through the Sellers, who have previously bought such Mortgage Covered Bonds to the issuers. The Covered Bods might be issued below their face value that can be different for each ssuer according to its ratings, established maturity and fixed annual interest rate. Only the Mortgage Loans that meet the requirements established by Law 2/1981 are elegible to back the emission of the Mortgage Covered Bonds. The issuers are not allowed to have issued and non-matured Mortgage Covered Bonds for a face value higher than 90% of the eligible portfolio to back their emission.None the less, the principal and the interests of the covered bonds are guaranteed by all the mortgages (eligible or not) subscribed on behalf of the issuer.In this type of financing, the bank or financial entity retains the ownership of its loans.

Loans granted for the acquisition of vehicles

The fund pools credit rights derived from: (i) loans and/or leasing contracts granted for the acquisition of vehicles both from business and consumer markets; (ii) existing credit lines between the financing entity (originator) and car dealers, through which such dealers finance the acquisition of new vehicles.

Receivables

These fund’s collateral is constituted by credit rights derived from services and sales which debtors are public administrations or private entities, and any other recivable that a company might issue. Asset open Funds can incorporate new credit rights from the originator with the purpose of extending the financing term.

Nuclear Moratorium

The fund pools the compensation right of which several power supply companies were entitled to as established in Law 40/1994. The fund is the only one entitled to such right, which allows it to receive the outstanding compensation, the corresponding interest rate, its repayments and the guarantees granted by the State for such end.

CDO

A Fund that groups bonds in its asset is called a CDO (Collateralized Debt Obligation). CDO’s issue bonds to finance the acquisition of a portfolio integrated by bonds or similar assets. A standard CDO may have as collateral dozens of corporate bonds, securitisation bonds, treasury bonds, etc.., all them with different ratings, yields and can even be denominated in diverse currencies.

Promoters' Loans

The fund’s asset is constituted by credit rights derived from Mortgage Loans granted initially by the originator to Real Estate promoters. Their purpose is the acquisition of building plots and/or the construction or restructuring of residential or commercial buildings and offices in Spain, backed by Mortgage.

Mortgage Transfer Certificates (CTH’s) are issued due to the transmission of the credit rights to the Fund

Consumer Loans

The Fund pools credit rights derived from financing transactions granted to individuals for financing the consumption (including properties, financial products and small properties such as garages, parcels, etc.. The Fund is frequently open and during a purchase period, additional assets are acquired up to a maximum. Once this period is over, the repayment of the issued bonds begins.

Generally, the Fund is incorporated as an open vehicle in which during the Purchase Period, Additional Assets are acquired up to a maximum stipulated amount. Once this Period is finished, the redemption of the issued bonds begins.

Entities which are involved in the Securitisation process

Originator

The entity that sells the assets to be securitised and that usually continues to be responsible for their management even though the assets may have been transferred to the Fund. Originators can be financial, corporate or public entities.

Special Purpose Vehicle (SPV)

Financial vehicle through which the assets are bought and the bonds are issued.

SGFT

Sociedad Gestora, Asset Securitisation Fund Management company, entity that manages and represents the SPV.

Investment Banks

Entities that can participate in the portfolio selection, transaction's structure design and ratings as well as underwriting.

Legal Advisors

Entities that develop the transaction legal structure, elaborate the Deed of Constitution and other additional contracts such as those required by financial services or underwriting.

Auditors

Entities that verify the elegible portfolio, when necessary, and carry out the annual auditing of the constituted Funds.

CNMV

The Asset Securitisation Management Fund Companies,Sociedades Gestoras and the Securitisation Funds are subject to regulation, supervision, inspection and, if applicable, sanction by the CNMV.

Receives the draft of the Deed of Constitution
Studies the transaction with the purpose of protecting investors interests.
Verifies the transaction
Once the transaction is verified, the bonds can be listed in the Spanish Secondary Financial Market.

Ratings Agencies

Entities that rate the risk of a transaction according to the securitised portfolio characteristics, the Fund structure and the originator.

For the fund, they value underlying assets, fund structure and credit enhancement.
For the originator, they value the quality of the management of the transferred assets as well as the process of granting loans and/or administrating them, the auditing and internal control processes.

Once the fund constituted, the rating agencies periodically revise bonds ratings according to changes in credit risk exposure.

Underwriters

According to legal regulations, the intervention of an underwriting entity is mandatory. They assure the bond issuance and additionally they can provide liquidity on agreement along the bonds' life.

Investors

Buyers of the issued bonds by the SPV. Traditionally they are institutional investors but private investors might also take part

Paying agents

The paying agencies carry out the financial service of the issuance: payments to the bondholders following the instructions of the Asset Securitisation Fund Management Company “sociedad gestora”. Besides, the payment agencies hold the Treasury Account of the Funds. Depending on the transaction, the rating agencies set some minimum requeriments for the condition of paying agent, such as that the credit entity must have a maximum short term rating.

Glossary

Report: Constant Prepayment Rate

Change in constant prepayment rates: includes historical data of the prepayment rates since the incorporation of the Fund.

Annualized monthly: Prepayment Rate registered monthly, applying the formula:

(1-[1-(CPR/OP)]^12)*100

Where:
	CPR	=	Monthly prepayment.
	OP	=	Outstanding Principal of the non-defaulted loans at the beginning of each month.

Annual: Prepayment Rate from the last 12 months, applying the formula:

(1-[1-(CPR/OP)])*100

Where:
	CPR	=	Prepayment from the last 12 months.
	OP	=	Outstanding Principal of the non-defaulted loans at the beginning of the 12-month period.

Report: Bonds Issued

Rating: Rating assigned by the Rating Agencies to the Bond Series issued by the Fund.

Where:
	Moody's	=	(M)
	S&P	=	(S)
	Fitch	=	(F)
	DBRS	=	(D)

Current coupon: Interest rate applicable to each Series of Bonds in the following Payment Date.

Gross coupon per unit: Amount of the interest per single Bond, for each series of Bonds in the following Payment Date.

Net coupon per unit: Amount of the interest per single Bond, for each series of Bonds in the following Payment Date, less fiscal retentions.

Report: Bond's financial service

Principal unpaid: Amount of principal of each Series of Bonds due and not paid.

Outstanding nominal balance: Outstanding principal balance of each Series of Bonds on the report’s date.

Report: Flows

Residual average life: Weighted Average Life for each Series of Bonds since the report date until total redemption of each Series:

Where:
	B	=	Principal to be amortised for each Series of Bonds in each Payment Date.
	d	=	Days between the calculation date and each Payment Date.
	C	=	Outstanding Nominal Balance of each Series of Bonds.

Residual Prepayment: Years remaining for the call option under the hypothesis of an estimated prepayment rate.

Report: Fund's Summary

Factor: Outstanding Percentage for each Series of Bonds.

Interest Type: States if the coupon for each Series of Bonds is referenced to a fixed or variable interest rate.

Frequency: States the payment frequency of the Bonds.

Current reserve fund: Amount standing in the Fund’s accounts, on the report date, corresponding to the Reserve Fund.

Weighted LTV: Ratio calculated for non-defaulted loans as: guarantee valuation times outstanding principal for each loan, divided by the sum of the outstanding balance of the non-defaulted loans in the pool.

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