Recent developments in Structured Finance

Transcription

1 Recent developments in Structured Finance Financial Markets Legal Update 18 May 2017 Jeroen Bos Marieke Driessen

2 Introduction The Dutch Landscape Securitisation Covered Bonds Other structured finance issues PRIIPS 1 / B_LIVE_EMEA2:906298v1

3 The Dutch Landscape 2 / B_LIVE_EMEA2:906298v1

4 The Dutch Landscape - Asset classes Mortgage Loans remain important asset class Covered bonds become more and more important New issuances for originators (such as frequent issuers but also non-bank lenders Securitisation of historic deals (such as Delft 2017 RMBS) Car lease receivables, trade receivables and consumer loan receivables are other popular classes 3 / B_LIVE_EMEA2:906298v1

5 The Dutch Landscape Shift away from banks 4 / B_LIVE_EMEA2:906298v1

6 The Dutch Landscape Shift away from banks Banks remain (so far) major mortgage lenders given strategic importance of mortgage lending for banks Non-bank mortgage lenders (such as Venn Hypotheken, Dynamic Credit and others) continue to grow market share Institutional investors participate in mortgage loans via mortgage funds, such as Munt Hypotheken and funds from NNIP and AEGON AM 5 / B_LIVE_EMEA2:906298v1

7 The Dutch Landscape future developments? Possible new asset class: the Buy-to-Let mortgage loans NIBC, Handelsbanken and RNHB are active More popular due to increasing house prices and absence of other investment possibilities Securitisation of collapsed historic deals: especially where original lender no longer exists Securitisation to fund the acquisition price of loan portfolios 6 / B_LIVE_EMEA2:906298v1

8 Securitisation 7 / B_LIVE_EMEA2:906298v1

9 Securitisation new features A cap is the new swap Fully paid up front Less impact on balance sheet of the originator Subordination of part of the interest step-up amounts Improves ratings of the notes Wet funding mechanism Originators try to finance their origination pipeline as well 8 / B_LIVE_EMEA2:906298v1

10 Securitisation US Risk Retention Rules (II) Same purpose as EU Rules skin in the game Burden on the sponsor Different definition of securitisation no need for tranching and issuance of securities is required to qualify as securitisation under US rules Horizontal slice is problematic as it requires determination of market value of assets under US GAAP Safe harbour is available if: Reg S transaction Less than 10% of notes are sold to US Persons for Risk Retention Purposes No US assets and no US originator Reg S Safe Harbour wording is not sufficient 9 / B_LIVE_EMEA2:906298v1

11 Securitisation STS - Update Background revive the European asset backed finance market Important pillar of Capital Markets Union Two parts First: requirements on transaction structure and assets for a Simple, Transparent and Standardised securitisation Second: amendments to CRR for lower capital requirements for investors Current status Ongoing discussions between the EU Expected effective date is Q / B_LIVE_EMEA2:906298v1

12 Covered Bonds 11 / B_LIVE_EMEA2:906298v1

13 Covered Bonds - general New markets entrants opt for conditional pass-through structure (e.g. Van Lanschot, Aegon) soft-bullet (Rabobank) The 2015 covered bond legislation provides more clarity for issuers and investors Covered Bond Purchase Programme 3 expected to terminate soon 12 / B_LIVE_EMEA2:906298v1

14 Covered Bonds in the Netherlands Overview of Dutch Covered Bonds programmes Bank Compliance with covered bonds legislation? Conditional passthrough? Year of first issuance Rabobank Yes No 2017 (expected) Van Lanschot Yes Yes 2015 Aegon Yes Yes 2015 NIBC Yes Yes 2013 ING Bank Yes two programmes No 2009 ABN AMRO Yes No 2005 SNS Bank Yes No 2008 Achmea Bank No No / B_LIVE_EMEA2:906298v1

15 Conditional Pass-Through Covered Bonds (CPTCB) A CPTCB is a covered bond with an extension period as long as the maturity of the cover assets When do CPTCB move into the pass-through condition? if a CB has reached its maturity date and the issuer has defaulted, and the sale of a part of the cover pool is not sufficient to redeem the matured bonds without a loss, and/or the sale of part of the cover pool were to result in a deterioration of the Amortisation Test (AT) for bonds that do not mature Only in case the Amortisation Test fails, all series of outstanding bonds will move into pass-through mode 14 / B_LIVE_EMEA2:906298v1

16 Conditional pass-through covered bonds What happens if bonds become pass-through? Every six months CBC will try to sell part of the cover pool to redeem bonds (only if AT passed) No obligation to sell at best price available, if sales price is lower than outstanding bond amount (i.e. different from soft bullet CBs) Otherwise coupon payments continue, while proceeds from payments and excess interest will be used to pay investors 15 / B_LIVE_EMEA2:906298v1

17 Impact on documentation DNB requires extra documentation on CPT Covered Bonds: CPT CBs and Bullet CBs cannot be issued under the same programme documentation Separate chapter in the prospectus that clearly sets out: circumstances that lead or can lead to the start of the extension period the payments that will be extended the rights of the covered bondholder in case of extension No statutory liquidity buffer for conditional pass-through covered bonds (in practice programmes do have these) 16 / B_LIVE_EMEA2:906298v1

18 Other structured finance issues 17 / B_LIVE_EMEA2:906298v1

19 Other structured finance issues Alternative structures Relevance of UCITS and AIFMD for structured finance Product governance under MIFID2 PRIIPS and KIDs 18 / B_LIVE_EMEA2:906298v1

20 PRIIPS 19 / B_LIVE_EMEA2:906298v1

21 PRIIPS and KIDs The PRIIPs Regulation introduces a new mandatory key information document (KID) for packaged retail and insurance-based investment products (PRIIPs) from 31 December 2016 Investment product manufacturer Any entity who manufactures an investment product Any entity who makes changes to an existing PRIIP including altering its risk and reward profile or costs associated with an investment in the PRIIP A person advising on or selling a PRIIP must provide retail investors with KID in good time before retail investor is bound by any contract or offer or in certain circumstances after conclusion of transaction 20 / B_LIVE_EMEA2:906298v1

22 The form and content of the KID (main points) Must be short (no more than 3 pages) Written in non-technical language, no jargon Format is specified Must be consistent with any binding contractual documents of the PRIIP but May be liable if misleading, inaccurate or inconsistent with relevant parts of the legally binding documents of the PRIIP 21 / B_LIVE_EMEA2:906298v1

23 Key issues How to summarise complex products into 3 pages How to comply with detailed rules about presentation and content How to ensure accuracy of SRI, performance scenarios and costs How to generate, review and maintain the KIDs How and when to deliver the KIDs Liability for getting it wrong Relevance of FinTech firms 22 / B_LIVE_EMEA2:906298v1

24 Questions? Jeroen Bos Partner, Financial Markets Simmons & Simmons Amsterdam T E jeroen.bos@simmons-simmons.com Marieke Driessen Partner, Financial Markets Simmons & Simmons Amsterdam T E marieke.driessen@simmons-simmons.com 23 / B_LIVE_EMEA2:906298v1

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