Transactional issues

SPV forms

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

Australia does not have specific laws pertaining to securitisation special purpose vehicles (SPV) and so SPVs can take a number of different forms. The most common form is a special purpose trust established for a specific securitisation transaction. Other forms that may be utilised are special purpose companies or a combination of an issuing company and an asset holding trust.

SPV formation process

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

A trust can be formed quickly and easily and is established by a trustee declaring, often by way of executing a trust deed, a trust over initial assets held by the trustee and future assets acquired by the trust. The initial assets of the trust are typically nominal. There are no registration requirements for a trust (except for a limited number of trusts, such as managed investments schemes, although this is unlikely to apply for a securitisation), however, an Australian Business Number (ABN) is typically obtained in relation to the trust. There are limited ongoing filing requirements for trusts with an ABN (such as an annual business activity statement).

A company is incorporated in Australia by registration with ASIC. This is also a relatively quick and inexpensive process. However, in addition to the initial registration documentation for corporations, there are ongoing filing requirements for companies with ASIC (such as annual returns).

Governing law

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

Australian laws do not require a sale of receivables to be governed by the same law as the law governing the receivables.

The Australian courts will generally give effect to an express choice of law, including foreign law. However, this is subject to:

  • the choice being bona fide;
  • there being no public policy reason to not give effect to such choice; and
  • the choice not infringing on any statute.

If any of these situations arise, local law is likely to override a choice of law clause.

Asset acquisition and transfer

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

An Australian SPV may acquire new assets or transfer its existing assets after the issuance of its securities. However, in respect of ADI originators, APS 120 restricts the circumstances in which receivables can be transferred back to the originator. The transaction documents will also often contain a restriction on disposal of the SPV’s assets. The originator is often allowed to substitute new assets into the SPV as consideration for repurchasing assets that are found to have breached representations and warranties. APS 120 allows for this, provided such substitution occurs within 120 days of the issue of securities.

Registration

What are the registration requirements for a securitisation?

There are no specific registration requirements for a securitisation, however, there are a number of incidental registrations that will be made as a result of the securitisation.

The security trustee’s security interest in the trust assets will be registered on the Personal Property Securities Register (PPSR) to perfect the security trustee’s security interest in the SPV’s assets (see question 26 for further details).

Other registration requirements may need to be satisfied where the issuance from the securitisation is to be listed on an exchange or traded through a clearing system.

In respect of ADIs, APS 120 requires an ADI to undertake a written assessment of each securitisation in which it participates, demonstrating compliance with the requirements of the prudential standard.

Obligor notification

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

In relation to an equitable assignment, the obligors do not need to be informed for receivables to be validly assigned to the SPV. An equitable assignment is the most common form of assignment for Australian securitisations.

Notice of assignment to the obligors allows the purchaser to perfect assignment; however, notice is not always given at the time of assignment. An ability to perfect assignment at a later date if required is often relied on. This approach does, however, leave the SPV exposed to some risks. In particular, the debtor’s obligation to pay is owed to the originator, not the SPV. If the debtor were to default, the SPV has no direct right to take action against the debtor. This can be overcome by the originator agreeing to transfer legal title or grant a power of attorney to the SPV on the occurrence of particular events, such as the originator’s insolvency.

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

In Australia, the Privacy Act 1988 (Cth) (Privacy Act) regulates how personal information can be collected, used and disclosed and imposes ongoing standards in relation to personal information. The Privacy Act applies to information about individuals and applies regardless of the individual’s purpose in entering into the underlying contract. The Privacy Act also contains specific requirements that apply to credit information; this information is subject to tighter restrictions on how the information can be collected, used and disclosed.

Credit rating agencies

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

Under the Corporations Act, credit rating agencies are required to hold an AFSL and to comply with the conditions of the licence, including requirements to comply with the IOSCO Code of Conduct Fundamentals for Credit Rating Agencies. Credit rating agencies are also required to provide assistance to ASIC, including in relation to their compliance with the Corporations Act.

Credit rating agencies must use rating methodologies that are rigorous, systematic, consistently applied, and, where possible, result in ratings that can be subjected to some form of objective valuation. The factors that rating agencies focus on in Australian securitisations are outlined in their global or Asia-Pacific ratings methodologies for the relevant asset class.

Directors’ and officers’ duties

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

Directors of a company are under a duty to act in the best interests of that company, and to prevent that company from insolvent trading. A trustee will also need to carry out its responsibilities under the trust deed and must discharge its fiduciary duties that are owed to the beneficiaries of the trust.

APS 120 contains a restriction on the ability of an originator’s directors to sit on the board of the SPV. If the SPV’s board contains 4 or fewer members, none of the originator’s directors may sit on the board. If there are more than four members, a restricted number of the originator’s directors may sit on the board.

In addition, APS 120 does not permit an originator ADI to act, or allow any of its directors, officers or employees to act, in any circumstances as a trustee of the SPV (or in any similar capacity).

Risk exposure

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

There are no Australian requirements for an originator or arranger to retain a certain amount of exposure in the securitisation. Conversely, APS 120 requires a significant credit risk transfer in relation to the underlying receivables if the ADI originator is seeking regulatory capital relief.