Our whole business securitisation comprises around £1.66 billion of debt as at October 2019 in the form of tradeable, listed bonds secured over the assets and cashflow of the majority of the business. Such transactions will increasingly be a feature of international securitizations, particularly in markets where creditor-friendly bankruptcy laws allow creditors, effectively via receivers, to assume control of underlying revenues on an on-going basis and manage the revenue pool of a business in order to extinguish capital markets indebtedness. 811 18 Operating and financial covenants for a whole-business securitisation tend to be largely similar to those for leveraged loans. In 1999, global ABS issuance reached $198.8 billion (despite concerns about Y2K and interest rate hikes). Certainly floating charge assets should not primarily be relied upon to generate funds to pay investors. @��L��:1/:;�h��@�)��YO'.t���$�4ii��k�f'6��*̩2��Z��!���/��f�+r '&����*i��޴t�6��;�n�9p����y%��؂�l~�tz�ܩpl�V�Ng�ab9�1�����W�]���� 1G��D*���k�1/o�o����9ag�XH��jWP.�ŭ��k�—�m]�.ɯ�.�R,�xH��V�V9������|2�o���J��x`Ftt�C��444--�c``RRJ� ��P �(`qq �ѓ�0 A whole business securitization is a finance method backed by cash flows generated from “business” itself (or sometimes including cash flows generated from asset sale, etc.) More recently, U.S. corporate securitization techniques started expanding to other businesses in which intangible assets such as … Securitization provides a number of potential benefits over conventional bank finance. For developments affecting project finance and the energy sector. In order to rate a whole business securitization, rating agencies have adopted an approach that combines elements of a structured or securitization transaction and a corporate transaction. Both were found to have big loopholes in the structure when they went wrong. Finally, there will probably be regulation specific to the industry of the originator that will have an effect on the transaction structure. in a whole business securitisation will not normally qualify as a securitisation company as the assets it holds will not be financial assets. ritized. However, such a structure may be used to finance the construction or development phase of a project if a third-party credit wrap from an insurer or other rated entity is obtained or if one has “free” unencumbered assets from existing projects for use as over-collateralization. The Securitization Process Prof. Ian Giddy Stern School of Business New York University Asset -Backed Securities xref An important example of this was the October 1999 issue by London City Airport of £100 million 7.886% senior secured notes due 2021 in order to finance its activities. The underlying assets are “transformed” into securities, hence the expression “securitization.” The holder of the security receives income from the products of the underlying assets, and this has given rise to the generic term ABS (Asset-Backed Securities).Note: All securities, of course, are backed by an ass… For example, Standard & Poor’s focuses on four key concerns. In whole business securitisation, the rating agencies look at the surety of the continuity of the business and therefore at the ownership of the locations or the rental contracts. Five specific Administration and collection of the pool must also be considered, in particular, to minimize the risk of co-mingling of assets of the administrator and the pool. There may be stamp duty, value-added tax, and withholding tax to pay, especially after transfer of assets to the purchaser and on any marketable securities issued under the securitization. Whole business securitization, also called franchise royalty securitization, first appeared in 2006 and 2007, allowing franchise-based businesses to effect a complete makeover of their capital structure. In a standard securitisation structure, the method of gaining risk exposure (that is, investing to become subject to the risks attached to a pool of assets, and the accompanying potential for gain and/or loss) to the underlying receivables is usually pursuant to a true sale of the receivables to the SPV (see below, Transferring the receivables). This type of securitisation uses a secured loan structure (as opposed to a true sale structure). ServiceMaster proposes first-time $725 million whole-biz securitization The debut issue from its initial master-trust offering will repay a bridge loan taken out by Roark Capital for its October 2020 acquisition the commercial and residential restoration and cleaning franchisor. The cash flows of the target group as a whole are applied to repay the loans to the issuer and to repay the rated securities to investors. Whole Business Thu 20 Feb, 2020 - 10:37 AM ET Fitch Ratings-Chicago-20 February 2020: Securitizations backed by Proved Developed Producing (PDP) securitizations have a certain … “ABS are a means of diversifying a portfolio into low-risk products that, by virtue of their structure, offer exposure to a diversified portfolio.” “Since the underlying assets are diversified, clearly identified, and pledged to the holder, the credit rating agencies claim that in the event of … To grant the loan, the SPV uses proceeds of bonds issued into the capital markets where- by the company grants security over most of its assets in favour of the bondholders. Most of the growth in ABS issuance is now taking place outside the United States where ABS issuance increased by 71.2% in 1999 over 1998 levels to $47.3 billion. The structure selected must be able to withstand the bankruptcy of the originator. Take two recent cases: Welcome Break and Marne et Champagne. whole-business securitization requires extensive legal and rating-agency structuring. Once isolated from the originator’s credit risk, such cash flows can be used to back securities issued in the capital markets — called “asset-backed securities” or “ABS” — having a higher rating than securities issued by the originator! Whole business securitization, also called franchise royalty securitization, first appeared in 2006 and 2007, allowing franchise-based businesses to effect a complete makeover of their capital structure. Standard & Poor’s says: “The balance of control in administration is weighted against the secured creditor. 0000004420 00000 n The marketable securities are then sold to third-party investors. The £572 million refinancing of the deal was again launched as a conduit CMBS opco/propco structure… As with other securities issues, asset-backed securities may take the form of an individual offering where all investors own, pro rata, incoming revenues from the securitized assets or a multi-tranche offering in which different classes or tranches of securities are issued carrying different rights to the asset pool. 828 0 obj <>stream (The bank debt market would only look at 3–5 years floating rate finance.). 0000061272 00000 n Whole business securitization can also be adapted to accommodate international companies with assets in various countries some of which do not permit direct security. Whole business securitization is a transaction structure used in countries with creditor-friendly bankruptcy regimes more friendly than the United States's regime. The illiquid asset pool will also usually provide security for the debt service obligations of the marketable securities. Whole business securitisation The structure of a whole business secu-ritisation involves the issue of bonds by a special purpose company which then on-lends the proceeds on a secured basis to the operating company which holds the business assets. This type of transfer has other legal consequences — for example, by virtue of s.136 Law of Property Act 1925, the purchasers under such an assignment cannot enforce the assigned debt directly against the debtor in legal proceedings without first joining the seller. With this growth has also come another feature: innovative securitization structures have been developed outside the United States, based on local legal concepts, that enable whole businesses rather than isolated receivables to be securitized. At the end of July 2005 Marston's PLC (formerly The Wolverhampton & Dudley Breweries PLC) announced the marketing of a £805m securitisation of approximately 70% of its managed and tenanted estate. Acted on the whole business securitisation of Odeon’s UK cinema operating business, acting for Odeon – the largest cinema operator in the UK ; Represented Annington Homes on the refinancing of its portfolio of Ministry of Defence housing. related. More adaptations of the whole business securitization structure will certainly follow as the pace of international securitization increases and as originators in securitizable industries or sectors come to recognize the need to finance their businesses through the capital markets to ensure they are not at a competitive disadvantage. Such investors rely on rating agencies to do this for them. ... the structure … One of the latest innovations within the securitization field is whole business securitization. This enables the operating company to access a wider group of potential investors Thus, the pooled assets must be low risk and the loss experience understood. rather than backed by “assets” (accounts receivables, leases receivables, etc. In a recent transaction, key operating companies of the Tussaud Group granted mortgages over the shares of companies located in markets where direct security was not possible together with covenants to ensure that such “downstream” companies did not incur debts or grant security over or dispose of their assets. In English “true sale” securitizations, for example, equitable assignments of assets are common under which written offers and oral acceptances typically effect a transfer so as to avoid local stamp duty. Abstract One of the latest innovations within the securitization field is whole business securitization. As a result, in Europe, major infrastructure financings are now using securitization… ABS investors are usually institutional investors, such as pension funds, who lack the resources to evaluate ABS risks. Another issue is the nature of the asset pool to be securitized. Both were found to have big loopholes in the structure when they went wrong. Borrowers have not been slow to appreciate the competitive funding benefits of securitization. Whole business securitisation, and therefore pub securitisation, usually uses a secured loan structure whereby a loan is advanced by a special-purpose vehicle (the ‘issuer’) to a pubco, or ‘borrower’. Third, it is a method for widening a company’s sources of finance thus enhancing liquidity. This funding advantage, in part, explains the popularity of securitization as a financing technique. In addition, a securitisation in the UK may be structured as a secured loan – for example, in a whole business securitisation or a commercial real estate securitisation (CMBS). x�b```� ��� �����8� ��� ��r� �zÙ��>�?���Xq:��ay������Ă.���#;z��V��7)�X|�c��D��).�6QS4+�8�j7�� i#���iyZ����. In addition, observance of all legal formalities associated with any transfer of underlying assets must take place; otherwise, the assets may not vest in the purchaser. Legal issues to be considered include compliance with securities laws and laws governing conduct of investment activities. The 6,900-strong chain, part of New York-listed Yum Brands, is the latest restaurant franchise to tempt investors with a so-called whole-business securitisation. He also has extensive experience of Master Trust Structures. Such a technique allows to finance or refinance operating assets of the company. Such a technique allows to finance or refinance operating assets of the company. Other methods of asset transfer used in the UK in the context of securitizations include using participations and, increasingly, declarations of trust. Banks also need to charge for credit risk and, in the context of project finance, project risk. Its US$410m whole-business securitisation, called HONK 2015-1, is IFR’s US Structured Finance Issue of the Year because it threw open the doors to lower-cost, repeatable funding that previously was reserved only for the nation’s biggest fast-food restaurants. This article aims to provide a brief history of the Punch Taverns group, a summary of its whole-business securitisation structures and to describe the events … these criteria, whole business securitisation was – before the meltdown – rapidly becoming the vehicle of choice for replacing high-yield leveraged buy-out debt and thus a potentially important source of liquidity for the heated M&A market. A 20-year income stream may be financed by bonds having a 20-year term thereby avoiding risks of funding mismatches. rather than backed by “assets” (accounts receivables, leases receivables, etc. This type of securitisation uses a secured loan structure (as opposed to a true sale structure). As a result, in Europe, major infrastructure financings are now using securitization, in conjunction with project finance techniques, to enable projects to be financed. That doesn t mean securitisation doesn t work full stop. The list of acronyms and abbreviations related to WBS - Whole Business Securitisation The Securitisation Regulation includes an almost total ban on re-securitisation, which is defined as a securitisation in which any one of the underlying exposures is a securitisation position. The cash flows of the target group as a whole are then applied to repay the loans The WBS transaction is structured based on the residual cashflows of an operating business. Whole Business Securitization Introduction 1 Securitization vehicle, also called a special purpose vehicle, established only for the purpose of a specifi c securitization and legally diff erent and independent from the original owner of the assets. These “whole business” securitization structures have particular relevance to international project finance transactions and demonstrate that, increasingly, the demarcation between securitization and project finance is being blurred. Here, the cash flows derive not from the repayment of debt or other pre-contracted cash flows or receivables but from the entire range of operating revenues generated by a whole business. The receivables invariably continue to be administered or collected by the originator with little real disturbance to existing collection procedures. For more information related to these transactions, please refer to Fitch's UK Whole Business Securitisation Rating Criteria. Tax issues are major concerns. A satisfactory rating was nevertheless forthcoming. The whole business securitisation technique uses a variant of the concept of a secured loan rather than a true sale structure (Davidson et al, 2003, pp. Almost all securitizations require credit “enhancement” to cover the risk of underlying obligors in the pool defaulting. Our whole business securitisation comprises around £1.66 billion of debt as at October 2019 in the form of tradeable, listed bonds secured over the assets and cashflow of the majority of the business. Its US$410m whole-business securitisation, called HONK 2015-1, is IFR’s North America Structured Finance Issue of the Year because it threw open the doors to lower-cost, repeatable funding that previously was reserved only for the nation’s biggest fast-food restaurants. Servpro was the strongest debut issuer in the growing whole business securitisation market in 2019, with strong investor demand helping lead bank Barclays push boundaries with the structure and pricing. This was a major reason driving the London City Airport transaction where the term of the notes issued was far longer than that available in the bank debt market. The introduction of securitization-friendly laws in markets such as Italy and France has caused corporates and regulators to embrace securitization to such an extent that it is no longer viewed in such markets with suspicion but rather as an important and necessary finance technique. Under the Securitisation Regulation, originators, sponsors and original lenders will be under a new positive obligation to retain a five per cent net economic interest in securitisation transactions. In a whole business securitisation, the companies involved in the securitisation often form part of a wider corporate group which includes members that are not involved in the securitisation. Whole business securitisation after the fall The market impact of the sub-prime crisis has The Barchester Healthcare assets first appeared in the securitization market as Westminster Healthcare Finance, an early whole-business transaction that was redeemed in 2006. 0000001512 00000 n 0000007151 00000 n Securitization is a financial arrangement that consists of issuing securities that are backed by a pool of assets, in most cases debt. Typical credit enhancement alternatives include injecting “extra” financial assets into the securitization — such as additional receivables — and using reserve accounts and credit wraps (such as insurance and letters of credit from third parties). But investors should be aware that deals aren t always legally watertight. In particular, the article covers the originator, the SPV, the securities, transferring the receivables, security and risk issues, cash flow in the structure, the role of the rating agencies, regulatory issues, and tax issues. trailer 0000002344 00000 n Whole-business … A security with a higher rating than another security will attract relatively lower financing costs. Private offerings, on the other hand, may contain customized or unusual terms. In addition, a securitisation in the UK may be structured as a secured loan – for example, in a whole business securitisation or a commercial real estate securitisation (CMBS). ). Outline of Whole Business Securitization A whole business securitization is a finance method backed by cash flows generated from “business” itself (or sometimes including cash flows generated from asset sale, etc.) Second, securitization can provide balance-sheet relief through the removal of securitized assets and corresponding funding liabilities from the balance sheet of the originator (thereby improving capital adequacy ratios in particular for financial institutions and reporting ratios, such as debt-to-equity ratios and return-on-assets ratios). Another issue is how best to effect credit and liquidity enhancement. Th e securitization vehicle has a diff erent governance structure than the originating fi rm. These involve the transfer of assets by the originator to a bankruptcy-remote special-purpose vehicle that issues debt to fund the purchase. 0000002822 00000 n 0000038294 00000 n In order to undertake a securitization, it is usually important that the asset pool generates a stable and predictable cash flow because it is that cash flow that will service principal and interest payment obligations under the marketable securities. Securitization is a capital markets tool that enables cash flows to be isolated from the credit risk of the originator. These “whole business” securitization structures have particular relevance to interna-tional project finance transactions and demon-strate that, increasingly, the demarcation between securitization and project finance is being blurred. First, it can be a cheaper and more flexible source of long-term financing, particularly for companies below investment grade. Fourth, it enables assets to be matched with liabilities. Whole business securitisation, and therefore pub securitisation, usually uses a secured loan structure whereby a loan is advanced by a special-purpose vehicle (the ‘issuer’) to a pubco, or ‘borrower’. He has been involved in and advised on a whole range of transactions from RMBS in prime and sub prime markets to whole business securitisations. 0000003807 00000 n Securitization is considered to be “good for business” by compelling an issuer to be more disciplined in how it operates its businesses thereby improving systems, documentation and the issuer’s understanding of the real cost of its portfolio. startxref To date, the whole business securitization technique has been mainly used as an important refinancing tool — primarily for acquisition financings. Also in the case of whole business securitizations, interest coverage ratios, debt-service-coverage ratios, debt-to-equity ratios and debt-to-earnings ratios are perceived to be more generous than in the case of bank-financed deals. As the pool liquidates and pays out the lenders, the remaining reserves vest in the seller. Take two recent cases: Welcome Break and Marne et Champagne. Given the importance of whole business securitization techniques for project finance, this article examines the background to such transactions generally and the London City Airport transaction in particular. %%EOF Bond trustees are also less influenced by relationship factors than an agent bank on a bank deal. 0000003281 00000 n This transaction was the first time that a “whole business” securitization was used in the context of financing a project in the United Kingdom and provided the issuer with fixed-rate finance for 21 years — terms that the bank debt market simply could not match. Where securities are to be rated, they are unlikely to be rated higher than the seller’s rating in the absence of substantial elimination of seller credit risk. “Credit enhancement” addresses the risk of nonpayment by obligors while “liquidity enhancement” addresses risk of payment at the wrong time. ). Direct or third-party liquidity enhancement is common in the form of loans, the structure of which will be settled having regard to capital adequacy considerations of the lender. Here, the cash flows derive not from the repayment of debt or other pre-contracted cash flows or receivables but from the entire range of operating revenues generated by a whole business. In the United States, too much recourse back to the seller and too little default risk being transferred to the buyer may undermine the assets being considered as transferred to the buyer with there being no resulting “true sale.” Under English law, legal form is more generally respected. Before describing the particular structures employed in operating-asset or whole-business securitization, it is perhaps worthwhile for me to explain the terminology “whole-business securitization” and … <<1336C5F215EBBF4FBDBF3A1F2934E6BA>]>> If the marketable securities are to be offered to the public, then terms and conventions commonly used in the market must apply, including the need for the securities to be rated. Th e decision to use whole-business securitiza-tion involves an explicit choice regarding the fi nancial structure concerned as well as mana-gerial involvement and control. An automatic stay on security enforcement can apply on the appointment of an administrator, and the administrator can dispose of assets charged to other creditors whether under fixed or floating charges. In some whole-business securitizations, it has been proposed that the manager be split off from the sponsor in a new bankruptcy-remote structure based on the theory that this effectively separates the parent’s bankruptcy risk from the servicing of the securitization transaction. These “whole business” securitization structures have particular relevance to international project finance transactions and demonstrate that, increasingly, the demarcation between securitization and project finance is being blurred. In addition, first priority security interests must be granted over the assets of the operating company which should secure, in full, the principal and interest on the ABS. It was also praised for the tenacity of the management team in getting such a complex deal done to specifications in less than ideal circumstances over a short period of time. Whole business securitisation is evolving from an obscure and cumbersome funding technique for a select range of industries into a versatile corporate tool. Currently, the penalty for non-compliance is a punitive capital charge against investors’ balance sheets. ... securitisation structures, where it would be unusual for amounts to be rolled-up for such a long period without being paid out. Oil and Gas Securitizations, PDP Operating Risk Lower than U.S. One issue is the benefits sought to be achieved by the originator of the asset pool and how to structure the deal to achieve them. At a minimum, rating agencies require floating charges to be included in the security package for a “whole business” securitization. If the originator is in administration, there can be no true control.”. Overview. Industry fundamentals 9 2.1 Benefits of securitization 9 2.2 The process 10 2.3 Types of asset-backed securities 10 2.4 Risk and return profiles of tranche notes 11 2.5 The cash flow waterfall 12 2.6 True sale securitization 13 2.7 Synthetic securitization 14 2.8 Credit enhancement 16 Another issue is asset isolation. Whatever structure is adopted for a particular securitization transaction, a range of issues must be considered in nearly all cases. 0000002188 00000 n Punch Taverns' successful restructuring of £2.2bn of whole-business securitisation debt (2015) 2 JIBFL 107. Securitisation financing can also be raised via so-called “whole-business” securitisations in which a special purpose vehicle is established to lend, to the target group, funds raised via rated debt securities secured over the assets of the target group. In a default scenario, troublesome bank group dissenters are less likely to be prevalent as they will have been replaced by bondholders. The 6,900-strong chain, part of New York-listed Yum Brands, is the latest restaurant franchise to tempt investors with a so-called whole-business securitisation. New Structures: “Whole Business” Securitizations Of Project Cash Flows. “Whole business” securitizations offer a potential solution to the difficulty of structuring around underlying revenue streams arising from contracts that are not assignable or capable of being subject to fixed security and complex businesses that require active management and that generate revenues otherwise than from short-term receivables. Moreover, other perceived benefits arise over bank finance for issuers. For such originators — and London City Airport was one of them — the use of “whole business” securitizations is more appropriate. Lehman Brothers Asset-Backed Securities Index: A fixed-income index that focuses on asset-backed securities. 0000000656 00000 n X$D4H6. Whole Business Securitization 1. 459-460). The objective of this paper is to identify current problems and propose legal and regulatory reforms to Colombia's securitisation framework that would enhance e ... To reach that, an analysis of the securitisation legal structure in the UK and in Colombia is done, focusing in the underlying secured transactions. In terms of the “control” issue, under English law, a first ranking fixed charge will largely be unaffected by liquidation. 0000001706 00000 n B�$ECC�z9l@+:�B$;b��`��6�9�@����"���.�{�F In this regard, the term and regularity of payment of the asset pool will be a deal driver as will the credit quality of the pool. Securitization is the financial practice of pooling various types of contractual debt such as residential mortgages, commercial mortgages, auto loans or credit card debt obligations (or other non-debt assets which generate receivables) and selling their related cash flows to third party investors as securities, which may be described as bonds, pass-through securities, or collateralized debt obligations (CDOs). A “true sale” structure does not easily accommodate originators with contracts that are difficult to transfer, businesses that have numerous bespoke contracts generating receivables, businesses that generate cash revenues or businesses that require much time and management to generate revenues. “Whole busi- ness” securitisation is essen- tially a secured loan granted by an SPV to the relevant compa- ny. Please upgrade your browser to improve your experience. Compliance with applicable accounting rules is necessary if off-balance sheet treatment is required. ... the Group securitisation to provide stability and flexibility to the Group in order to manage the Secured Financing structure. Whole business securitisation 16 Structured Finance International www.SFInews.NET July/August 2002 S ecuritisation is like Viagra for com-panies.” So said Guy Hands, proba-bly the person who has done most to bring securitisation to the forefront of European corporate … Administration is another issue. %PDF-1.6 %���� 0000003537 00000 n structure and its market-making size. UK Securitization is a process by which illiquid assets, in the nature of cash flows and connected contract rights, are pooled and repackaged into marketable securities representing claims against the illiquid pool. ( as opposed to a true sale structure ) assets to be from... Nearly all cases of issues must be low risk and the energy.! 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