Key issues in structured finance and securitisation transactions in Switzerland

Transactional issues

Which forms can special purpose vehicles take in a securitisation transaction?

If the parties decide not to use a trust structure governed by foreign law (which is generally recognised in Switzerland), they will often use a Swiss SPV. This is particularly the case for transactions relating to an underlying real estate asset portfolio located in Switzerland, as in this case the use of a non-Swiss SPV may lead to the incurrence of cantonal withholding taxes on interest payments under the issued debt which is secured by the relevant real estate assets. The establishment of a foreign SPV may also not be an option for data-protection reasons. Swiss issuance vehicles can either take the legal form of a stock corporation or a limited liability company.

What is involved in forming the different types of SPVs in your jurisdiction?

In practice, it does not make a big difference whether the parties decide to set up the SPV in the form of a stock corporation or limited liability company. From a transactional perspective, the main difference between these two entities are the initial capital requirements – the minimum capitalisation for stock corporations is Sfr100,000 (of which a minimum of Sfr50,000 must be paid in), whereas it is only Sfr20,000 for limited liability companies. Setting up an SPV usually takes one to two weeks. In order to ensure that the SPV is bankruptcy remote, the purpose of the SPV (which is set out in its articles of association) is usually limited to the securitisation transaction in question. Further, it may be necessary to implement golden shareholder structures (ie, structures where an independent shareholder has certain veto rights) in order to fulfil the requirements of rating agencies, as Swiss SPVs are typically held by the originator.

Is it possible to stipulate which jurisdiction’s law applies to the assignment of receivables to the SPV?

The parties to a receivables or asset purchase agreement are generally free to choose the governing law. They are also free to have the transfer governed by another law than the governing law of the asset. However, when making a choice of law with respect to the transfer and assignment of receivables, the parties must consider Article 145 of the Private International Law Act, which provides that a choice of a law other than the law governing the receivables cannot be asserted against the third-party debtor without the latter’s consent and a party could also raise objections to the validity of the assignment under the law governing the assigned rights. As a result, the parties of a securitisation transaction typically choose to govern the sale of receivables or other rights by the law governing the relevant receivables or rights.

May an SPV acquire new assets or transfer its assets after issuance of its securities? Under what conditions?

In order to ensure that the SPV is bankruptcy remote, the purpose of the SPV (which is set out in the articles of association) is usually limited to the securitisation transaction in question. This has, among other things, the effect that a SPV may transfer its assets only after issuance of its securities in very limited circumstances. The acquisition of new assets is quite common in revolving securitisation transactions, which by their nature require this transactional element. The acquisition of assets is in any case subject to certain conditions, limits and eligibility criteria.

What are the registration requirements for a securitisation?

In Switzerland, no registration requirements exist for a securitisation.

Must obligors be informed of the securitisation? How is notification effected?

If the underlying agreements governing the receivables do not exclude an assignment, notification of the creditors of the assignment is not required. However, the parties to the transaction may have an incentive to notify the underlying obligors, as such a notification will prevent them from validly discharging their obligations by making a payment to the originator as debtor. If the parties decide to transfer the receivables via an assumption of contract, the consent of the underlying obligors is required for the transfer to be valid and effective. Notification is usually effected by informing the obligors in writing.

What confidentiality and data protection measures are required to protect obligors in a securitisation? Is waiver of confidentiality possible?

In order to comply with Swiss data protection laws, the parties typically obtain a waiver from the underlying obligor. Such waivers are often included in the underlying agreement governing the receivables. If the relevant waiver is drafted properly, it is generally considered to be valid from a Swiss law perspective. In any case, a breach of any applicable data protection or similar law does not have the effect that the assignment would not be valid and binding.

Are there any rules regulating the relationship between credit rating agencies and issuers? What factors do ratings agencies focus on when rating securitised issuances?

As there is no overall securitisation framework, Swiss law does not provide for any specific rules regulating the activities of credit rating agencies and their relationships with issuers. The relationship between credit rating agencies and issuers is therefore only governed by the contractual arrangements existing between these parties in connection with securitisation transaction.

In Swiss issuances, credit rating agencies consider various factors when assessing asset-backed securities structures, including:

• whether the underlying receivables agreement contains any transfer restrictions or restrictions on the assignability of the receivables;
• the availability of true sale opinions;
• which credit enhancement methods have been chosen;
• the constitution of the board of directors of the special purpose vehicle (SPV) (ie, the appointment of an independent board member); and
• the ownership structure of the SPV (ie, a wholly owned subsidiary of the originator or a vehicle held by independent shareholders).

What are the chief duties of directors and officers of SPVs? Must they be independent of the originator and owner of the SPV?

Absent specific securitisation regulation, there exist no specific rules for directors and officers of SPVs acting as issuers. However, Swiss corporate law provides that the members of the board of directors of a Swiss stock corporation and the managers of a Swiss limited liability company have certain non-transferable and inalienable duties.

These duties include the following elements:

• the ultimate management of the company and the issuing of the necessary directives;
• the establishment of the organisational structure of the company;
• the structuring of the accounting system and of the financial controls, as well as the financial planning to the extent that this is necessary for the management of the company;
• the appointment and the removal of the persons entrusted with the management and representation and the granting of signing authority;
• the ultimate supervision of the persons entrusted with the management, particularly in view of compliance with applicable laws, the articles of association and regulations and directives;
• the preparation of the annual report, as well as the preparation of the general meeting of shareholders and the implementation of its resolutions;
• the notification of the relevant court in the case of over-indebtedness of the company;
• the passing of resolutions regarding the subsequent payment of capital with respect to non-fully paid-in shares; and
• the passing of resolutions confirming increases in the share capital and related amendments to the articles of association.

In addition, Swiss law does provides for no rules according to which the director or officers of the SPV must be independent of the originator and owner of the SPV. However, from a Swiss corporate law perspective, the board of directors or managers is (subject to a very limited number of exceptions) not to be considered to be the shareholders' (or originator's) agent, but only has responsibility towards the company. However, it is a standard request of credit rating agencies that at least one independent board member is appointed.

Are there regulations requiring originators and arrangers to retain some exposure to risk in a securitisation?

As Switzerland has enacted no legislation governing securitisation transactions, there are no skin-in-the-game or similar risk-retention requirements for originators or arrangers in place in Switzerland. However, in order to fulfil certain rating requirements, many transactions include similar covenants, as this is the case in transactions which fall under the European securitisation regime, including specific skin-in-the-game covenants.